BlackLine, Inc. (BL) Q2 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q2 2025 BlackLine Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Matt Humphries, SVP of Investor Relations.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan and Therese Tucker, Co-Chief Executive Officers of BlackLine; as well as Patrick Villanova, Chief Financial Officer. Before we get started, I'd 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 Q3 and full year 2025, 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 the call are reasonable, actual results could differ materially as 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. 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 historic GAAP versus non-GAAP results is 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 all for joining us on today's call. For the past 2 years, Therese and I, alongside our dedicated colleagues have relentlessly focused on shaping the next era of BlackLine. This journey while demanding and not without its challenges, has only deepened our resolve to guide, power and inspire our customers' finance transformations. The substantial progress you will hear about today has led to an important strategic evolution in our leadership. With great confidence in BlackLine's trajectory, Therese will now dedicate even more of her time and expertise to directly supporting our customers' success. In turn, the Board has entrusted me as BlackLine's sole CEO. This transition is a testament to the profound partnership the Board has overseen between Therese and me, built on mutual respect and a shared commitment to BlackLine's mission. I am deeply grateful for her leadership, trust and ongoing collaboration. To be clear, Therese remains a vital part of BlackLine, and this is an evolution of her role in maximizing its impact where it matters most with our customers. Turning to the quarter. BlackLine delivered 7% revenue growth and a 22% non-GAAP operating margin. Our strategic shift to a platform company serving the office of the CFO is driving accelerated success visible in our forward financial metrics and KPIs and underpinned by disciplined go-to-market execution. As a reminder, in November of last year, we laid out a number of strategic initiatives that support the company's refreshed strategy. First was to deliver a platform, Studio360, that can accelerate the adoption of new BlackLine solutions while allowing us to introduce a new pricing model. Second was to enhance our go-to-market strategy, targeting markets with the highest opportunity, accelerating our industry focus, improving the efficiency of our spend and ultimately driving long-term customer value. And third, was to refine our partner network to drive further leverage and global reach. Our second quarter results demonstrate substantial progress against all of these. Therese will speak about Studio360 later, but as we look at our performance this quarter, you will see the tangible results of our improved go-to-market strategy and enhanced partner network. We saw significant strength in both the volume and size of net new deals with the average new deal size growing by an impressive 35% year-over-year. This growth was driven by the increased adoption of our full record-to-report capabilities and critically, our new pricing model. Notably, our $1 million customer count rose to 84, up 24% versus last year. This quarter, we leveraged the powerful combination of our platform, new pricing and industry strategy to secure significant wins. First, we signed the largest deal in company history with an existing invoice-to-cash customer. This 8-figure partner-led expansion with an iconic global media and entertainment brand, encompassed financial close, Intercompany and the adoption of our new pricing model. Our strong referenceability demonstrated by serving 8 of the top 10 Fortune 1000 media and entertainment brands, coupled with this customer's proven success were key in unlocking this expansion and underscores the power of our end-to-end offerings. In oil and gas, where we also serve 8 of the top 10 Fortune 1000 companies, our platform positioning and industry expertise led to a new win with one of Europe's top 3 players. We also signed a 7-figure expansion with Marathon Petroleum, expanding our relationship by unlocking more of our solutions and platform for their global teams. This demonstrates the scalable value of our offerings and the embedded opportunity within our customer base. With our deep industry expertise and via our SolEx partnership, we secured a new top 5 North American life sciences customer. This deal replaces legacy point solutions with our unified financial close and Intercompany solutions, demonstrating our platform's power and a massive S/4 migration. We've demonstrated why BlackLine was the first choice, best choice, safe choice and ultimately, the only choice for this company's critical transformation journey. In manufacturing, we signed a Dutch company, NXP Semiconductors to a multi-solution financial close deal. BlackLine's platform bolstered by our golden architecture with SAP, provided confidence for their finance operating model transition. Importantly, NXP is already live on several solutions, which reaffirms our continued progress in reducing implementation time lines and delivering quicker time to value for our customers. Finally, we secured two significant wins in APAC. We won a new deal with one of the top 3 largest Japanese banks and landed our largest ever win in APAC, a high 7-figure expansion with a top 3 Australian bank. Strong interest continues from major financial institutions, offering significant opportunities to build on this momentum. These large deals collectively demonstrate how the successful combination of our market-leading technology, domain and industry expertise and customer-driven innovation are unlocking opportunities for BlackLine at a size and a pace we have not previously seen. Building on this success and underpinning our confidence in the future, we generated strong pipeline growth again this quarter with our creative pipeline up 70% year-over-year. This remarkable growth, a direct outcome of our refined platform messaging and strategy is fueling broader market demand. We also improved our ability to generate and win deals with stronger close rates this quarter. This performance across the entire sales cycle from pipeline creation to closing deals underscores our enhancing ability to deliver predictable, effective results, firmly rooted in our platform-centric approach. Our new pricing model introduced earlier this year has proven to be a clear winner, amplifying our comprehensive platform strategy. Q2 adoption exceeded expectations, especially with new customers. About half of eligible new logos in the second quarter adopted our new pricing model, a strong early result. This model not only drives adoption and higher deal sizes, but also served as a key differentiator from multiple large enterprise and upper mid-market deals, demonstrating BlackLine's broad appeal across customer segments. Our success also stems from a clear strategy of value-based selling, positioning our brand around transformational conversations. This approach is resonating, reflected in our expanding pipeline and larger deal sizes. Our differentiated value proposition is gaining significant traction. This led to strong win rates against legacy point solution competitors in the enterprise segment. Crucially, we are seeing incremental market demand as we focus on delivering outcomes and not just selling software. Our strategic focus on the public sector is also yielding tangible results. We recently secured our first public sector win with a federal agency. We have also seen demand building from a number of other federal agencies and bureaus as well as from large states. While early, this validates our progress and investment, establishing a critical foothold to drive additional growth from this greenfield market. Our partner channel continues to be a growing differentiator, playing a pivotal role in securing numerous larger partner sourced or partner influenced deals. This partner led growth, spanning BPOs, system integrators, resellers and SAP is driving increased pipeline activity, market interest and growth. In the second quarter, partner sourced bookings exceeded expectations, delivering record performance. And importantly, we saw stronger partner enablement and advocacy trends in Q2 with noteworthy growth across all of our solutions, Studio360 and industry verticals. Our SAP partnership showed solid performance across sales, pipeline generation and deal sizes. We expect this momentum to translate to bookings and revenue growth in Q4 and into next year. The benefits of this partnership, especially as we move to commercialize our Studio360 platform and our positioning to lead with finance first are critical to unlocking the full potential of this partnership and ultimately higher growth. As part of our strategy, we are intentionally targeting larger mid-market customers while moving away from smaller, less complex accounts. This strategic pivot is being validated by our results. Q2 mid-market new deal sizes grew 55% year-over-year with 3 of our top 5 largest mid-market deals adopting our new pricing model. For the first half of the year, new customer deal sizes in the mid-market are 60% to 70% larger than those leaving BlackLine, validating the strategic choice. We acknowledge this pivot will not immediately be reflected in metrics like customer count and revenue renewal rates as we deprioritize smaller accounts in favor of larger accounts who are more willing and ready to transform. While our Q2 renewal rate was 91% and continues to be around the mid-90s for enterprise and in the 80s for mid-market, this is an expected outcome. We are confident in the long-term accretion and enhanced profitability from the strategic shift. Beyond this strategic resegmentation, we are deepening customer relationships and seeing strong market willingness to commit to BlackLine for longer terms. Customer commitment deepened this quarter evidenced by strong multiyear renewal performance. Through the first half of this year, over 40% of our renewals were multiyear, a significant increase over the prior year period. This combined with our new pricing model, which is well ahead of targets, strengthens our market positioning and is expected to drive accelerated revenue growth in the quarters and years ahead. While I am incredibly pleased with our results, our team remains far from satisfied. Our remit going forward is to execute on the strategy we have articulated with a clear focus on outcomes for customers. Make no mistake, while we still have much to deliver on, it is beginning to feel like the Black is back. With that, I would like to turn the call over to Therese.

Thank you, Owen, and good afternoon. Following the announcement of my transition at the end of Q3, I want to reiterate my excitement for this next phase. This isn't a step back. It's a strategic refocus on what has always been key to BlackLine's success, direct engagement with our customers and prospects. The past 2 years have cemented my confidence in Owen's leadership ability, and we are completely aligned going forward. While I value my partnership with Owen in the co-CEO role, this new chapter allows me to dedicate more time to driving our strategy in the market with a specific focus on accelerating growth in Europe. Now let's talk about innovation, which truly drives everything we do at BlackLine. Our customer conversations confirm a growing problem in the office of the CFO. Companies face ever-escalating data quantities, lack proper orchestration, run antiquated systems and lack centralized command and control. From day 1, we have designed Studio360 to address these challenges and bring order to this chaos. Recently, we've made considerable enhancements to Studio360 and are accelerating our progress. We believe Studio360 will serve as the strategic foundation for the future of modern finance, offering an integrated AI-powered platform with accurate data at its core. To achieve this, we powered Studio360 with Snowflake. Impressively, over 1,100 of our customers now use it to drive their reporting, providing unparalleled scale and performance while simultaneously lowering our cost to serve. This data layer deepens BlackLine's relationships with customers, allowing us to serve as their trusted partner, one who can handle their continued growth and increasingly complex automation needs on our platform. Furthermore, it enables us to rapidly build new use cases based on their data and launch innovative next-generation products like big data matching, which supports matching volumes over 30x our current offerings. This empowers several industry use cases such as financial services, while also allowing us to scale and expand our Agentic AI offerings. Looking ahead, we're excited about Agentic analytics capabilities and the introduction of highly configurable dashboards, which will offer even deeper, more intuitive data visualization. A core component of Studio360 is the integrated module, and we've made substantial progress expanding its connectivity. Specifically, our Snowflake data sharing connector is available now to early adopters with general availability this quarter. Our early access program for the Oracle Fusion Connector went live in Q2 with Workday and enhanced D365 connectors slated for early access in the second half of this year. We've also added API support for triggering workflows from external systems within BlackLine to facilitate end-to-end automation with third-party systems. This continued expansion and enhancement of our connectivity further differentiates us in the market and supports a wide variety of ERPs and third-party financial systems. To provide greater visibility into Studio360's capabilities, we've enhanced and expanded BlackLine process automations within Studio360's Blueprint module. Many of these completed automations are now also featured on BlackLine's website, enabling users and prospects to easily discover and understand the breadth of solutions and use cases we offer. This extends our platform, facilitating partner-driven use cases and helping build the ecosystem that will ultimately surround our platform. Importantly, we are moving fast to commercialize Studio360 with SAP. This will enable us to sell Studio360 to our joint SAP customers and prospects significantly expanding our market reach and partnership potential. The results are already tangible. We see market demand for Studio360, evidenced by pipeline growth and strong early adoption of our pricing strategy. Our partner training initiatives are also up 50% quarter-over-quarter, indicating robust ecosystem engagement and readiness for scaled adoption. Now let's delve into the specific innovations across our core products, all contributing to the overall platform value. In financial close, we've seen tremendous success with early adopters of our high-frequency reconciliations with general availability coming in Q3. We're also pleased to announce our first customer for our nonmonetary reconciliation solution for the oil and gas industry. We've also released new journals enhancements that drive more self-service, reduce implementation times and importantly, extend our platform to enable partners to drive customer adoption on our behalf. Looking ahead, we have major releases planned for the second half of the year, including advanced big data matching and additional industry tailored solutions, along with new Agentic AI experiences that dramatically increased automation for our customers. We plan to unveil a number of these at our upcoming BeyondTheBlack conference in September. So stay tuned. Consolidation continues to be a major strategic investment for BlackLine. We are dedicated to enhancing and expanding our offerings to serve enterprise customers. We complement these complex consolidation enhancements with robust reporting functionality to meet the demands of the largest global organizations. Intercompany had a very strong sales quarter. As a solution seamlessly integrated into the overall platform, its power and value clearly resonate in the market. We are deeply integrating our Intercompany products with Studio360's orchestrate module to initiate automated Intercompany transactions as part of the financial close. This will significantly enhance end-to-end automation and accelerate our customers' time to value. Invoice-to-cash also saw a strong performance. Our customers and partners view this not as a stand-alone tool, but as a key solution within a broader platform that solves their most complex challenges. To deepen our offering, we are adding new payment gateways and enhancing tax integration for our EIPP components. Invoice-to-cash remains a top priority in the office of the CFO and we are well positioned to meet the demand for automated solutions that address cash and working capital needs. We continue to accelerate AI-focused innovation and use cases across our platform, leveraging both Agentic and more traditional AI/ ML capabilities. Recently, we delivered several summarization and natural language querying experiences for customers across our solutions, enhancing productivity and driving insights and decision-making. Our thoughtful approach is a key differentiator. We focus on data structure, scalability and ensuring that all AI-driven results are completely verifiable, auditable and transparent to users. This builds critical trust with customers and ensures our AI offerings meet their enterprise needs. Internally, we also drive efficiency with AI. We recently rolled out a new Agentic AI platform to our entire company, empowering BlackLiners to build their own agents to handle routine work. While live for only a short time, the majority of our workforce has adopted and actively leverages its capabilities. This internal adoption is not only a testament to our technology, but is expected to drive even higher levels of productivity. On the infrastructure front, our GCP migration is nearing completion. All European customers are now on GCP. And we are on track to finish North American migrations in the second half of this year. This migration enhances performance, lowers our future cost to serve by removing duplicative hosting costs and unlocks further AI innovation with our technology partners. We are also strategically building out our presence in Saudi Arabia to support growth in that critical region. Furthermore, we are making significant progress on our FedRAMP journey and the build-out of our secure instance. As Owen mentioned, these efforts are vital to expanding our position in the public sector and unlocking new opportunities for growth. Our vision of a platform and product portfolio that solves huge problems for the office of the CFO is being realized. What we're hearing from our customers confirms that this is the right set of business problems to focus on. I am immensely proud of our team and our strategic positioning. We are translating customer feedback into market value at an unprecedented rate, and our momentum is building. With that, I'll turn it over to Patrick to cover our financials. Patrick?

Thank you, Therese. Owen and Therese have provided a comprehensive overview of how our strategic choices are driving significant market traction and innovation. Their commentary underscores the tangible progress and improved execution we're seeing across the business. And to echo their sentiment, while we are pleased with our results, we recognize that there is further opportunity ahead. Our commitment is to balance the growth we see with disciplined margin expansion aligned with our multiyear financial targets. Now, let's review the financial highlights that demonstrate this progress in more detail. Total revenue grew to $172 million, slightly above 7%. Subscription revenue grew 7% with service revenue growing 3%. Annual recurring revenue, or ARR, was $677 million, up over 9%, growing ahead of revenue due to accelerated bookings, which influenced all forward-looking metrics this quarter. FX was about 1 point tailwind to ARR this quarter. Remaining performance obligations, or RPO, increased over 11% with current RPO increasing by 9%. RPO growth was driven by solid sales performance combined with multiyear renewals. Calculated billings growth was 11%, inclusive of about 0.5 point of FX benefit. Trailing 12-month billings growth was 7%. Our customer count at the end of the quarter was 4,451, up slightly from the previous year and down from Q1, reflecting our strategic choices that Owen spoke about earlier. Our revenue renewal rate in the second quarter was 91%, with healthy enterprise performance. Our aggregate rate continued to see planned churn from lower mid-market customers and was in the 80s. Net retention rate or NRR was 105%, where we saw healthy customer expansion, particularly in enterprise, driven by larger deal sizes and some benefit from FX. Strategic products represented 30% of sales, up compared to 28% last year, as our platform and new pricing model are unlocking cross-sell opportunities while improving our go-to-market efficiency. We saw particular strength this quarter from Intercompany invoice-to-cash and transaction matching. SolEx performance was steady with a higher mix of net new sales. SAP as a percentage of total revenue was 26%. Turning to margin. Our non-GAAP gross margin was approximately 80%, with non-GAAP subscription gross margin of 83%, in line with our expectations as we move through the end of our cloud migration. Non-GAAP operating margin was 22%, driven by gross margin performance, combined with improved productivity from our teams. Non-GAAP net income attributable to BlackLine was $38 million, representing a 22% non-GAAP net income margin. We generated $32 million in operating cash flow and $25 million in free cash flow in the quarter. Restructuring payments from our Q1 workforce action, lower interest income driven by our share repurchase program and higher taxes were drivers of lower free cash flow this quarter. We expect to see free cash flow to outpace operating income in the second half of this year. Regarding our balance sheet and capital allocation, we have approximately $857 million in cash, cash equivalents and marketable securities versus $894 million in debt. Finally, we repurchased approximately 796,000 shares for approximately $43 million in the quarter, bringing our year-to-date total to nearly $89 million. Our share repurchase program remains a key part of our capital allocation framework going forward. Regarding guidance, our strong second quarter performance execution and pipeline trends are enabling us to raise our full year revenue guidance. Our outlook on margins for the full year reflects measured investments into strategic growth initiatives like Saudi Arabia as well as the public sector that can further accelerate growth in 2026 and beyond. For the third quarter of 2025, we expect total GAAP revenue to be in the range of $177 million to $179 million, representing approximately 7% to 8% growth. We expect non-GAAP operating margin to be in the range of 20% to 21%. This range includes approximately 2 points of operating margin headwind due to our BeyondTheBlack conference. And we expect non-GAAP net income attributable to BlackLine to be in the range of $36 million to $38 million or $0.48 to $0.51 on a per share basis. Our share count is expected to be about 77.3 million diluted weighted average shares. And for the full year 2025, our updated guidance is as follows: we expect total GAAP revenue to be in the range of $696 million to $705 million, representing 6.5% to 8% growth. We expect non-GAAP operating margin to be in the range of 21.5% to 22.5%. And finally, we expect our non-GAAP net income attributable to BlackLine to be $159 million to $167 million, or $2.13 to $2.24 on a per share basis. Our share count is expected to be about 77.3 million diluted weighted average shares. With that, I'll now ask the operator to open the discussion to take your questions.

[Operator Instructions] Our first question comes from the line of Chris Quintero of Morgan Stanley.

Owen, Therese, Patrick, congrats on a solid quarter. I wanted to hit on the large deal momentum that you're seeing. Curious, Owen, maybe in the past, you talked about some of those deals that slipped out of Q4. So just curious if you can maybe break down how much of the strength came from those slipped deals closing versus new deals that ended up coming to fruition in the quarter as well as kind of stack rank all the different drivers for the growth rate there?

So Chris, as we've been talking, our pipeline really started to grow in September of last year, which we've been messaging. There's usually a 9- to 12-month cycle for us to get things right before the deals close. And so we saw things that certainly slipped at the end of last year but then there are also things that just started in the fourth quarter that finally hit their maturation point this year. And so we've seen good progress with those kind of larger deals, and our pipeline is filling up with many more of those opportunities. And it's just a combination of the things that we've been talking about. It's having different conversations at a higher level in the organization about a broader solution capability of the BlackLine platform and all the enabling solutions that we have. And so all of that is coming to manifest itself in the pipeline build. It's showing up in the numbers, what gives us confidence as we head into the back half of the year. Geographically, we're seeing good dispersion around the globe, and we're seeing it across industries. And also importantly, we're seeing it with the powerful partner network that we've built. So all the things that we said we would do are starting to come to fruition, and that's what's really propelling the growth.

Awesome. That's really helpful, Owen. And then I want to ask around given the new pricing model, kind of an unlimited user, pricing model. I'm curious what you're seeing in terms of customers' proliferating BlackLine licenses across the organization, maybe into other areas that aren't historically user bases that you have historically gotten into it? And is that impacting net retention rate and upsell as well?

Yes. Patrick is going to take that, so go ahead, Patrick.

Yes, Chris, thank you. So we are closely monitoring that, Chris, obviously. And part of the approach when we talk about delivering a platform and delivering a platform pricing model is that individuals within an organization outside of the accounting [ thing, ] the traditional accounting and finance department can yield benefit from the overall platform. We are starting to see some of that proliferation, but I want to reiterate that it is early. We launched the model in the first quarter in North America and in the second quarter in EMEA, but we are closely tracking that. Overall, it's part of our model, but we do anticipate that as more different types of individuals within an organization has access to the platform that we would expect to see that to drive consumption going forward. So that is something we are closely monitoring.

Chris, if you think about the words that Therese talked about, our first customer using operational accounting, that's where the real opportunity then begins to sort of give us a chance to truly proliferate around this platform pricing.

Our next question comes from the line of Rob Oliver of Baird.

Great. I also wanted to ask about the new pricing model, a really nice progress. I think you guys said half of new wins coming in on the new pricing model. And I'd be curious to hear what you heard from customers in terms of the attractiveness of it and why they chose it. And also when you think about the half that didn't, what sort of learnings that the sales force and the go-to-market team is absorbing that could help us perhaps see that number rise in the coming quarters?

Yes. Thanks, Rob. This is Patrick. So we are ahead of plan as it relates to our pricing strategy and the implementation of our pricing model. And that is generating a tailwind that you see in a lot of our leading metrics for the quarter. What we saw was a much more transformative conversation rather than engaging enterprise customers that could literally have thousands of accountants, it was a conversation, not about how many seats they needed or how many license they needed, but how they could transform the overall office of the CFO going forward by giving access to the platform to everyone. So it was a much more strategic conversation with those customers, and it was a much more transformative conversation rather than getting maybe caught up in license counts. And then one other thing there, I would not say that the 50% of the customers that we did not sell the platform to chose the former model. Some of those customers were introduced to the seat license model in past quarters, and that was part of the negotiation. So we are openly pushing the platform model, and we are seeing increasing rates of adoption, which we would expect going forward as it becomes part of our sales motion or a more embedded part of our sales motion.

Great. And I just had a quick follow-up for Therese, your second time passing on the CEO role. So I want to congratulate you. And also just stepping back for a second, you guys have done a lot to kind of rebuild a lot of things here over the last few years, and it appears that many of those things are coming to fruition. So as we head to the upcoming BeyondTheBlack, I just wanted to get your thoughts as to maybe some of the changes over the last couple of years and what you're most excited about heading into that event.

Thanks, Rob, and thank you for your kind words. The last 2 years, I think it feels like sometimes Owen and I worked nonstop. But the result of that is, I think we have the strongest management team that this company has ever had. Most talented, most willing to roll up their sleeves and work. I mean we are really excited about the management team that we have. I think, secondly, my confidence in Owen is just so very strong. I mean I just absolutely adore how he runs a company. And so I just have so much confidence that he is the right choice for being the CEO. And this gives me a chance to go and do the things that I love the most, right? I love working with our customers. I love trying to figure out where the best place it is to apply technology to solve business problems. And that will be also what I'm very focused on at B2B. Because my best part of B2B is to have my one-on-ones with all of my different customers to figure out if what we're building is going to solve their problems. And so -- yes, I hope we see you there, Rob.

Our next question comes from the line of Koji Ikeda of Bank of America.

I too have a question on kind of the CEO announcement here today. Super exciting news. Congrats, Therese. Congrats, Owen. I guess the big picture question is like what's really changing? Therese, I've always kind of viewed you as the technologist, Owen as the operator. So while official titles are moving, it doesn't sound like things are changing all that much, which, in our view, it sounds like it's a pretty good thing. So maybe some color on what actually might be changing here.

I think you're right. It's not going to be a huge change. It's simply that I get to step back from some of the operational things. I get to step back from things like earnings calls, Koji. I get to focus on what I'm really good at. And so it's probably not a huge shift in terms of the public [ eye, ] but it's just -- it's more a change in focus.

Got it. And if this is your last public call, Therese, would love to hear your thoughts on the adoption curve of AI and Agentic AI in the office of the CFO. I think understanding this curve would be really helpful in thinking about BlackLine's platform versus consumption revenue trends over the long term?

Absolutely, Koji. The problem with any cool new technology is that you have to separate hype from reality, right? And you have to figure out what the guardrails are around it to make it be really successful. And I think that that's actually something that -- and you've got to do those things before you're really going to get strong adoption. For our particular market where you have to be able to prove each and everything, right? It's really important that, as I mentioned in my remarks, that things be auditable, that you can explain exactly how you got to a particular conclusion, right. So the sort of responsible approach to it is to make sure that you detail out how you got to any conclusion in a way that an auditor could support. That's one. Number two is Jeremy has said before that data is the new currency. And it's been something I've been focused on for years that we have almost 20 years of data going back in this market as the creator of the financial close software market. We have more data going back further than anyone else. How do we properly structure that, so that AI can actually learn well because you can build an agent in about an hour using any one of the platforms out there, and they're very cool, right? But if you don't actually have the data to back it up so that it learns properly, then you're just not going to get consistent results, and consistency is super important to our market. So I think there's a number of things that have to be excused upon accounted for before you're going to see much of an adoption curve. And I think that that's been our focus, is to make sure that what we're building not only delivers real value, but all of the auditability behind it. And I can go on for days on this one. Yes.

Actually, Koji, we're at BeyondTheBlack. We have a session with CIO, Head of an audit practice that deals with the PCOB and the SEC all the time and what the regulators are talking about where they'll accept AI and where they won't. And then a consultant who is talking about how they're advising the office of the CFO to implement AI. And it's going to be very interesting because the opportunities are great, but there are some real barriers that companies are going to have to overcome to be able to show that there's that audibility, traceability, reliability that Therese mentioned, there can't be a black box when it comes to AI and the preparation of your financial statements.

Our next question comes from the line of Alex Sklar of Raymond James.

Great. Owen, I want to follow up on Chris' question earlier on the strong big deal activity and your commentary more than backfilling that pipeline. Can you just provide some more context on what you saw actually change in the quarter that helped drive those faster close rates? And then maybe a related one for Patrick. Did all of those book deals that were in the prepared remarks, did all those hit billings, RPO this quarter or some are still expected for the back half?

Yes. Look, I think you guys all know, we've added a new Chief Commercial Officer, Stuart Van Houten, and many of you will get a chance to meet him next month in Las Vegas at our BeyondTheBlack conference. What he has brought is a real discipline and rigor to how to run a go-to-market operation. And it's something that I think the team has really embraced. Their execution has just gotten that much better. Our articulation of value, one of the things that we have been focused -- laser-focused on is time to value for customers, right? And so if I were to look from a year ago today to where we are now, every one of our solutions can be implemented at least 30% quicker than it was a year ago. And that's by us and it's by our partners. And so that ability to gain the confidence of CFOs and his or her teams that they can spend bigger money on doing things that are more transformative and get the payback in a reasonable amount of time has proven to be very, very compelling. And look, we all know there's been a lot of choppiness in the markets as to whatever comes out of different world capitals and how people are responding to different things. But right through thick and thin, we've been building our pipeline every month. The opportunities are getting bigger. They're getting broader, and they're getting done at the right level, which is really critical to what we're seeing in driving our success. It doesn't mean that there can be something that comes out of, again, one of these broad capital that destabilizes the market, but it hasn't stopped us at this point in time, and there's nothing that we see right now that's going to have a big negative effect on us. That said, there were some large deals that did get stalled at the end of the second quarter that we thought were over the goal line, but they just for the different political reasons, they got put on hold, but we're going to continue to work them and be creative in how we try to get those deals across the finish line. And again, that's what Stuart and his leadership team, I think, are excellent at doing on behalf of BlackLine and our customers.

And then to address the second part of that question, yes, there are a couple of few deals that will be a tailwind to RPO and billings in future quarters.

Okay. Great context there. Maybe just one follow-up for you, Owen, on SAP. I appreciate the commentary of it being more Q4 weighted, but just maybe an update in terms of what you've seen in terms of momentum from that channel that's kind of underlying your favorable commentary? And any change in activity from some of the newer opt-out relationship in certain of those SAP bundles?

Yes. Look, I think there was a lot of things that we've shared with you that we've been trying to work through with SAP leadership. It's not just in -- opportunities in the marketplace, but it's on the product road map, how reps are compensated where we wound up on a bill of materials and a whole host of things. Right across the board, we continue to make really good progress. They're a terrific partner. But we always knew that this was not going to be a first half, first 3 quarter event for BlackLine and other -- BlackLine and SAP as we move forward. So we're seeing the pipeline building. We saw it starting at the end of last year. We certainly saw it coming out of the Sapphire conferences in North America and Europe. I think there's a lot of enthusiasm. Obviously, the success stories like with an Exxon and the Delta got a lot of people's attention that we're really having the ability to capitalize on. And so that's just continuing to move forward. And I don't look at this and I don't think we look at this as a one quarter, hey, we're going to nail the fourth quarter 2025 or anything like that. We look at this as a change in how we're driving that relationship over the long term for the benefit of our customers. And that's what we're doing. And I think it's going to be a win, win, win, win for SAP, win for BlackLine and win for our customers.

Our next question comes from the line of [ Ken key La Corte of Citizens.]

I think that will be Pat from Citizens. Congratulations, Therese. Okay. So Therese, can you talk more about Studio360. So it unifies financial close, invoice cash, consolidation analytics and Intercompany, right? What is involved in getting there if you're an existing customer? Like do you have to pay more? Do you need services to get there? And then if you could also talk about the role of Snowflake in Studio360, why that's important, that would be awesome.

Okay. How much time do we have, Pat?

Well, you have to decide that.

Okay. So there's a couple of things. First off, Studio360 was implemented to be the platform underneath all of our products. And we pulled various things from different areas. We basically pulled it into a single platform. We added additional capabilities. We looked at where we needed more strength. And so it is already a part of what every customer is experiencing. Now how much they can actually utilize some of the more in-depth capabilities of the platform? That's where how much they pay comes into play. Okay. So for example, you could have BlackLine visualize, which is one of the five platform components and see some very cool product dashboards. However, if you want your own custom dashboards that describe exactly the metrics that you need for your business, now you've got to layer a level up to pay for the platform. Okay. And it's across that on all of the different components. If you want event-based scheduling, orchestrate will do that for you. If you want to start combining 15 different ERPs and scheduling within those systems and other external systems and triggering things from one to another, you're going to need to pay a level up for orchestrate. So it's really -- we wanted to put a lot of it out there now so that our customers can take advantage of it but also with a bit of a carrot for if you can do these cool things for free, imagine what you can do if you actually bought the platform. Now, Snowflake. Snowflake is part of a reality check in the world. Data volumes are growing exponentially in every single customer out there. Okay. And the ability to have things like high volumes of matching transactions, literally in the billions, okay, is becoming more and more of a common use case. So Snowflake, and by the way, they are a customer, Snowflake is part of our strategy to be able to really handle incredibly large volumes of data. And when I say handle, I mean things like data sharing with Snowflake, okay, some of their great reporting that they've got in there. Just a lot of the capabilities are really becoming must-haves in today's world of huge data volumes. I think that kind of sums it up.

Yes. No, that's great. That's great. That's great. And then Owen, the follow-up for you is, if we go back to that 8-figure deal, I was thinking maybe you can walk us through sort of how that ended up coming together and it's -- SAP is involved and there's a partner, right? So I just thought it would be a great way to sort of...

No. No, it is not an SAP deal, so -- through a partner. And it's one of the partners that we have a very deep, long-standing relationship with. And when the opportunity presented itself, we did a lot of teaming as you can imagine, and it was well over a year process to get to where we got to. But I think it's a testament to the confidence our partners have in capabilities of BlackLine, the reliability and the deep trust because they're so intimately involved with the road map that Therese and the team are building and rolling out. And so it becomes part of a very compelling narrative in the conversations with the customer. So I would say, in my view, I would always like these things to go a little bit quicker than they take. But it was a textbook example of us using our partner powered strategy to really move the needle for a very, very important global media and entertainment company.

Our next question comes from the line of Steve Enders of Citi.

Okay. Great. I guess maybe just to start, I just wanted to dig into a little bit more. It sounds like maybe there were some, I guess, large deal delays that took place or some impact from that. So just maybe what are you seeing out there from the macro perspective, like were those deals that slipped? Is it kind of outsized versus what you would typically see? And I guess I'm trying to compare that versus the strong bookings and ARR commentary and the actual numbers you've put up there? So yes, it would be great to just get a little bit more detail on kind of like what actually happened versus...

Yes. I don't know if I can give you a perfect clear answer because at one level, we have just been executing a whole lot better as a team. And so that has been probably the thing that I think both Therese and I as well as the rest of the leadership team feel really good about. That said, I mean, I'm still sitting here thinking about the end of the quarter, and we had one really large deal that deferred. It was a big, big global brand, tight margin business, and they just didn't think they had the resources and budget given the uncertainty of what they were going to do. And then the flip side of it, we had a decent-sized investment bank and to quote the CFO, I won't use the full word, [ f it, ] let's just do it and move forward. I hope that wasn't recorded. But -- so like you kind of got a little bit of both in the reactions as to how people were looking forward. I think the thing that we keep looking through is we are doing a much better job as a team trying to create the narrative, talk about the value we can truly create for customers that need to get back on that digital finance transformation. And I think it's two things. I think one is within our existing portfolio, reengaging, we talk about like we're trying to resell to our customers every day. We win their hearts and minds every day in a way that we haven't maybe done as well as we could have in the last couple of years, but that's been -- and part of it -- and then the confidence again that our partners have in us, the confidence that our own team has, what we've been able to accomplish on the product road map is making us much more compelling when we go into these net new opportunities. And we did really well in the enterprise space this last quarter, but for the first half of the year, beating some of our legacy competitors. And just because we're more full breadth, there's more confidence in what we can do and the referenceability from other customers are willing to advocate on behalf of BlackLine in addition to those system integrators and those consultants.

Okay. No, that's great context. I appreciate that there. And then I guess just a follow up on, I guess, the enterprise versus mid-market. I guess I don't know if shift is the right word, but I guess the incremental focus on bigger mid-market customers and allowing some of the smaller ones to roll off. But just how do we maybe think about what that kind of path from here looks like or the time line for how that maybe shakes out over the next couple of years?

Yes. So Patrick and I go to tag team on this issue. And look, I think it's -- the important thing here is the conversations our people are having with prospective customers. And now I'm talking about the ones that want to come with BlackLine or the ones that we're trying to sort of get to renew. And you have to think about like we're not interested in selling you a software package and calling it a day. What we're trying to really do is help our customers, these prospects to transform. And so we go in and we have conversations that are different that talks about what must be trues, what must be true from what BlackLine does, what must be true from a partner, if they use one and then what must be true from a customer. And we're pretty good at figuring out who has a better likelihood to want to transform that has the right resources, has the right executive support to move things forward. And then again, our ability now to just get smarter and better, lessons learned to get more quickly time to value. And so what's happening in the portfolio, and Patrick will keep me honest here. But if I were to look at the net new wins, I think in the second quarter, it might be year-to-date, they're roughly 100% larger than the customers who are leaving. And so think about that for every new customer we're adding, it's significantly larger than the customer that's going. What you're -- it's telling us those customers that are going are not going to transform. They haven't demonstrated an issue, but we are finding those places in those conversations with customers about where there's a greater likelihood of success amongst and between BlackLine and partner and the prospect. And that -- I give a ton of credit to our marketing team. They're doing a phenomenal job of really identifying those places where there's a real likelihood of us being able to deliver meaningful impact. Now how long does this continuing wind-down take? I'll turn that over to Patrick to answer, but he keeps telling me we're in the seventh inning. So I'll let Patrick talk about the seventh inning.

Yes. I mean Owen, I know we joke about it that sometimes we're in the sixth or the seventh inning stretch. But I feel quite confident we're 2/3 of the way through the lower mid-market in terms of working through those customers that are not thinking about transformation. But I think, Owen, just to elaborate on a couple of things you said there. One, you're absolutely right. We're on net new logos, we are landing much larger than the customers that are churning out. That's a testament to our landing a platform and it's a testament to our pricing strategy and the conversations that we're having. The customers that are leaving are not thinking about strategy, they're thinking about a handful of accountants and users, the customers that are coming in want to be with us for life. They want to engage in a platform. They want to introduce the platform to everyone within their organization. So that's a key takeaway here. And then the second element where we're seeing this our renewal strategy that we've implemented over the last couple of quarters, we're seeing significant success in the customers that want to stay with us to extend 3 or more years with us. And you're seeing that in all of our leading indicators, RPO -- long-term RPO is up 15%. So you're seeing that come through in terms of how we're setting ourselves up for the future to drive that long-term growth and to drive that stickiness that we -- with customers that want to stay with BlackLine.

I just -- one thing to note because this is important, right? So [indiscernible] doing the same thing over and over, expecting a different outcome. One of the things I give a lot of credit to our professional services team, our customer success team is for all the new customers that have joined BlackLine in the last 2 years, while Therese and I are in the role is we are like zealous making sure those customers get up and running so that we don't run into a risk when they get up to their third year and it's time to renew, and they're not sure. So that's really where I think the leadership team should feel very good about the progress they're making. So we're not just solving part of one problem and creating a problem on the other one. We're dealing with this -- the right way on both ends, if you will.

Our next question comes from the line of Daniel Jester of BMO Capital Markets.

This is Kyle Aberasturi on for Dan Jester. Quick one from me. I was wondering if you had initial thoughts on the impact of the new R&D tax credit policy could have on the business cash flows?

Patrick, we talked about this yesterday. Go ahead.

We did. And thanks, Daniel. So yes, so the BBB bill will have a beneficial impact on the business to the tune of about $10 million in free cash flow in the second half of this year and a more notable amount in 2026 and beyond.

Our next question comes from the line of Adam Hotchkiss of Goldman Sachs.

I'll keep it to one as well in the interest of time. But I wanted to follow up on Pat's question on the Snowflake piece. And I noticed you talked about Snowflake, Oracle Fusion, Workday, enhanced Dynamics 365 connectors that are in some form of early access are coming generally available this year. And I'm just curious if you could elaborate on the added value that those provide and maybe what the data connectivity products or process looked like prior to these connectors? I'm just curious what value this adds for you in the sort of prospective and existing customer base going forward?

Yes. In general, okay, when you've got something like Snowflake data share or a connector, it basically gets you live more quickly. Okay? And it's a more reliable ongoing interface. So in the beginning, we basically had created an extract file and put it on an FTP site. And that works beautifully and many customers still use that. However, a connector will get your data in more quickly, sometimes in real time, okay, more reliably, and it gets you up and running faster. It's just -- it makes things more smooth.

Our last question comes from the line of Jake Roberge of William Blair.

I'll keep it to one as well. You referenced signing your first federal agency during the quarter, can you talk about the learnings from getting that first deal over the finish line and just how pipeline in the public sector is trending now that you're live in that market?

Yes. So Matt and I will answer that question together. There's a lot of lessons that have been learned. We were very fortunate. I think as part of that to have a great partner in this case with Deloitte that really did a lot of work to help us secure the win. But Matt, why don't you take this because Matt's been living this one day in and day out with the teams.

Yes. So I think there's a lot of lessons applied to our commercial business across 4,400 customers that going into the public sector, you may have thought you would have had to have taken a different approach to sell to the federal agencies. And what we have been seeing is that whether by EO, by Act, et cetera, these agencies are becoming increasingly more curious, but they don't want to buy technology just to buy technology. So they're kind of applying some lessons learned from the commercial sector over the past 10 to 20 years. But they do want to solve real business problems. They want to increase productivity, especially when there's challenges for headcount. And then more importantly, they are really focused on auditability, both getting ready for an audit, passing an audit and then maintaining that audit over a period of time. So what we are seeing is, yes, there is a growing appetite for change, leveraging technology in the public sector, and we're basically applying the playbook we've had for the past 2-plus decades across all our customers globally in some of the most complex biggest organizations globally into the public sector. And then we leverage our partnership with the relationships we have across our commercial base, some big global SIs that have a lot of relationships with the federal, state, the local levels. And that helps your distribution, your pipeline growth and enhances the opportunities and the qualities that we see. So we see that pipeline, Owen talked about it. We see that building on the public sector side at the federal level both with our existing agency that we talk to, but then also potentially selling further across that agency. We see it with some of our key partners who have significant footprints in the public sector. And we're also seeing it at the state and local level with a number of large states that are having some challenges from an auditability standpoint. So it's pretty broad-based. It's early, acknowledging that, but we talked about the public sector opportunity in November of last year. You fast forward 8 months from now, we have our first deal. We have our pipeline. We have a building team in place. So from our standpoint, we are very, very excited about the progress we've made, the promises kept and the opportunity going forward.

This concludes our question-and-answer session. I would now like to turn it back to Owen Ryan for closing remarks.

Thank you. And thank you all for dialing in and your questions. We look forward to connecting the follow-ups. Talk soon, everybody, take care.

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