BlackLine was introduced to the board early in July by TMFish (Ryan). Here’s what he wrote:
“BlackLine (BL) is a $1.9 billion cloud-based accounting software company that IPO’d last October. The top line grew 48% in 2016 and 62% in 2015. Gross margins have improved every year and net margins, though still negative, are improving as well.
It is in a crowded space but Gartner labeled it a leader and it’s taking market share. Its TAM is expected to be nearly 20 billion and its revenues are only around 130 million.
BlackLine specializes in “continuous accounting”, a real-time reconciliation process rather than a batch process at the end of a quarter or year. This allows companies to better handle ERP (enterprise resource planning). It has many big-name clients including Under Armour who recently started using the platform.
Insider ownership is very high and one of the biggest holders, ICONIQ, is backed by Mark Zuckerburg. It seems to be an interesting company.”
Here were some other comments on the thread by other posters
“There was another 7 million shares not included in that latest count - so the market cap is $260 million higher.
Cloud-based, great trend to be involved in
Dollar based retention rate of 116%
Only 3 earnings reports but beat analyst consensus each time.
Still losing money .”
(Saul here) - The idea interested me, but it took me a couple of weeks to get around to looking into it. I checked their website for a description of what they do. Here it is (edited, as always):
“We are a high-growth, Software-as-a-Service business that is transforming and modernizing the way finance and accounting departments operate. Our cloud-based software platform supports critical finance and accounting processes, and because our software automates these processes and allows them to function continuously, we are empowering companies of all sizes, around the globe, to achieve efficiencies and enhance real-time visibility into their operations.
Our approach modernizes what historically has been done through spreadsheets and manual controls. We deliver real-time dynamic workflows in a highly automated framework, a process we refer to as “continuous accounting.”
We pioneered this market and maintain a leadership position in a $17 billion total addressable market – consisting of more than 165,000 potential customers and over 13 million finance and accounting professionals worldwide.”
I discovered that their IPO was in Nov 2016, and that they closed a secondary by selling stockholders (probably venture capitalists, but I didn’t check) in May.
“Announced the closing of a follow-on public offering by certain selling stockholders of 4.0 million shares at a price to the public of $33 per share. This included the full exercise of the underwriters’ option to purchase additional shares. Blackline did not receive any proceeds from the offering (and there was no dilution).”
Definitions from the press release:
Dollar-based Net Revenue Retention Rate. The current monthly revenue for customers from which we generated subscription revenue a year ago, divided by the year ago revenue from that same customer base. This does not include revenue for new customers added during the year, but does include the effect of customers who terminated.
Number of Customers. A customer is defined as an entity with an active subscription agreement as of the measurement date.
Number of Users. Since our customers generally pay fees based on the number of users of our platform within their organization, we believe the total number of users is an indicator of the growth of its business.
Then here were their March quarter results
“Record revenue of $39 million, up 45%.
Raised full year guidance
We are pleased to report another strong quarter. Revenues were up 45% to a record $39 million. This was achieved by adding new customers around the world, growing our user base and expanding our product offerings.
We are excited about the strong demand we’re seeing. We are ideally positioned to continue leading this market given our established brand, customer-centric approach and innovative solutions that improve the daily lives of finance and accounting professionals.
Quarter Financial Highlights
Revenues of $38.6 million, up 45%.
GAAP net loss of $9.0 million, or 18 cents per share, on 51.3 million shares.
Adj net loss of $2.9 million, or 6 cents per share, on 51.3 million shares.
Operating cash flow of ($1.7) million, improved from ($4.7) million .
Free cash flow of ($3.3) million improved from ($5.9) million .
Key Metrics and Recent Business Highlights
Added 92 net new customers in the quarter for a total of 1,850 customers.
User base up to 171,423 .
Dollar-based net revenue retention rate of 117%.
Commenced BlackLine Live world tour, a 50+ city global roadshow designed for finance and accounting professionals.
Guidance
Second Quarter
• Revenue of $40.8 to $41.8 million.
• Adj net loss of $4.9 to $5.9 million, or 9 to 11 cents per share, on 52.2 million shares.
We increased our full year 2017 guidance to:
• Revenue of $170.0 to $173.0 million.
• Adj net loss of $14 to $16 million, or 27 to 30 cents per share, on 52.8 million shares.
Conference Call
• Gross Margin over 81%
• Subscription revenue was 96% of revenue. (recurring revenue)
• International revenue was 19%, up from 15% a year ago.
• Operating Expense was 89% of revenue, improved from 99% a year ago.
• Cash was $101million.
• We remain on track to turn cash flow and operating income positive in Q4 of this year.
We had really good uptake of non-user based strategic products in our existing accounts. And we have more of those products now than we have had previously. But you won’t see that show up in the user count, so the user count may hang there because of strategic products that aren’t based on users.
The first example I’d like to tell you about is a large enterprise customer, who has been with us for some time. This is a global manufacturing company with more than $26 billion in revenue that started with us in 2011, and has added more users and more products so that in six years, their user base has grown from 30 to 700 end-users worldwide.
Given their level of satisfaction and success with our core platform, this company decided to trust us to solve another very large problem. With more than 100 different legal entities, this company needed a single central source for intercompany activity. In mid-2016, they purchased our new Intercompany Hub. (See questions below)
Question: Why is there demand for Intercompany Hub?
Answer: Let me give you an example, the settlement process. Let’s say you’re a company with 100 different entities. Those 100 different entities may all be able to trade with each other. At the end of the month, you’ve got to manually create a matrix of who owes who what. So it gets very, very complicated, and adds a lot of manual hours.
In other words, let’s say that you’re England and I’m in France. And, we move some money back and forth. If you don’t have good accounting around that, both countries can claim that as income and tax it. Now if you don’t even track it, if you don’t even book it to the right account, then you’re going to have taxing authorities from both countries going after the full amounts. And most companies don’t have good accounting around this. They have very, very manual processes.
Question: Maybe an update specifically on the SAP relationship. Historically, you guys have had a nice growing in relationship. And so how is that playing out?
Answer: Okay. We have a terrific relationship with SAP. This quarter, revenue from SAP was 18% and it’s in line with our expectations. We enjoy working with them. As for other ERPs, most tend to be very neutral. Of course, Oracle has had a competing product for some time now, but it really hasn’t impacted our business. And everybody else seems to be very neutral.
Question: Your backlog seems to be growing.
Answer: A growing percent of our business is multiyear contracts, but we bill annually. And so you see backlog (unbilled business) growing by virtue of just growth in sales, but also in growth in multi-year deals. So I wouldn’t draw any inferences from that, I would simply focus on the guidance that we give.
Question: Let’s start with your new partnership with Deloitte. Is this an exclusive, does it preclude you from working with the other big four vendors out there. And then, if you look at Deloitte’s Lloyd’s customer base, I think they have 80% of the Fortune 500, and over 6,000 mid-market companies that they service. Just provide us a little more color on that Deloitte opportunity, what it means to the business?
Answer: Well, first of all, we don’t do exclusive partnerships. And I don’t believe that Deloitte does either, because if you do that then you lose some level of independence. I will say however that we are the only vendor in this space that Deloitte has that partnership with, and I don’t think they have any other press releases out there that are quite as nice as the one that they did for us today. So that is great. We have a great working relationship with them. We enjoy working with them. We also have very good partnerships in place with the other Big Four, just not as commercialized yet. But we have good working relationships with them as well.”
That question made me look up the Deloitte alliance with Blackline on the Deloitte website, where I found this rather impressive information (and testimonial) dated from May 2017.
Helping clients accomplish financial automation for greater efficiency and decreased risk
Deloitte, with BlackLine’s enhanced financial automation software, can help clients govern and automate financial accounting and streamline intercompany transactions. Automating voluminous, manual processes improves operational efficiency while reducing occurrences of costly errors and allows talent to shift to higher value activities.
Why financial systems need to be automated and digitized?
Today, many CFOs, controllers, chief accounting officers, and other financial executives feel enormous pressure to shorten their financial close process, accelerate reporting to management and shareholders, and increase process efficiency, all while delivering accurate and timely financial statements. Compounding these challenges, finance teams often rely on inconsistent, error-prone manual processes and data from multiple ERPs, and systems where re-work is almost the norm.
Today’s controllership is bogged down in these manual activities, working overtime just to close the books. Activities like account reconciliations, journal entries, and intercompany transactions can benefit tremendously from process automation…shifting talented resources to more strategic and analytical work.
Digital controllership is enabled by BlackLine’s cloud-based, financial software
BlackLine is a leading financial corporate performance management solution focused on delivering “continuous accounting,” or the ability to smoothly complete routine accounting without a brute force effort consuming many days just to close the books.
Deloitte complements this solution with Digital Controllership services, providing effective process and governance design and implementation needed to effectively navigate the road to Digital.
Together, Deloitte and BlackLine enable enterprise finance organizations to:
Accelerate and de-risk financial processes.
Increase confidence in financial statements and controls
Mitigate risks associated with rework and control deficiencies
Free-up valuable finance professionals for higher value work
Start your journey to Digital today, leveraging the power of process automation, continuous accounting, and Digital Controllership.
Well, I knew nothing about Deloitte, so I did a little research on wikipedia:
Deloitte is a UK-incorporated multinationalprofessional services firm with operational headquarters in New York City.
Deloitte is one of the “Big Four” accounting firms and the largest professional services network in the world by revenue and number of professionals. It provides audit, tax, consulting, enterprise risk and financial advisory services with more than 244,400 professionals globally. In FY 2016, the company earned a record $36.8 billion USD in revenues.
As per reports in 2012, Deloitte had the largest number of clients amongst FTSE 250 companies in the UK, and Deloitte currently has the highest market share in auditing among the top 500 companies in India.
Deloitte has been ranked number one by market share in consulting by Gartner, and for the fourth consecutive year, Kennedy Consulting Research and Advisory ranks Deloitte number one in both global consulting and management consulting based on aggregate revenue. In 2016, Fortune magazine ranked Deloitte as one of the 100 Best Companies to Work For, and Bloomberg Business has consistently named Deloitte as the best place to launch a career.
I concluded that this was a very prestigious partner for BlackLine. (You can’t invest in Deloitte, by the way, it’s a privately held company.)
BlackLine has only been listed since November, but here’s the historical data I’ve been able to accumulate:
**Revenue**
2015: 18.0 19.0 21.6 24.9 = 84.2
2016: 26.6 29.1 32.2 35.9 = 123.8
2017: 38.6 = 171.5 (guidance)
**Percent increase in revenue**
2016: XX XX 49 44 = 47
2017: 45
**Net Loss**
2016: (5.9) (4.5) (2.2) (3.9) = (16.5)
2017: (2.9) (15.0) Guidance, which I presume they plan to beat.
**Adjusted Earnings** (the best as I can figure them)
2016: (14) (12) (05) (08) = (39)
2017: (06) = (27-30) guidance
**User base** (thousands)
2015: 102.9 111.4 119.9 128.7
2016: 137.1 147.5 156.8 166.9
2017: 171.4
**Dollar-based retention rate percent**
2016: XX XX 118 116 = 116
2017: 117
My conclusion: BlackLine looks to me like a Disruptor and a rapidly growing Category Leader. They have an alliance with a Category King. They are growing like mad. They have lots of recurring revenue. Their loss was only 13% of revenue in 2016, and using their guidance for revenue and loss for 2017 (both of which they will probably beat) their loss for 2017 will be just 8.7% of revenue, so we can figure on even a little less than that. I took a full size position (6.0%) in the past week or so.
Saul
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We had to post it in three parts this time.
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