BlackLine 1Q2021

Yes, I am satisfied with this report and a FY beat and raise. I had them in the penalty box last Q into this Q. I think Huffman is the right person for the job, and sales will only accelerate from here as Tucker steps aside.


Brief:

  • Revenue of $98.9m, +20%,

  • Operating cash flow of $28.5m, compared to $8.5m a year ago

  • FCF of $23.2m, compared to $4.9m a year ago

The businesses added 49 net new customers, for a total of 3,482. This fits with "seasonality" of slower customer add, see below:

Company raised FY21 outlook on revenue to $415-420m up from ($410-415m). See this is where you have to model your own numbers and expectations, you cannot take these sandbags at face value. Its a joke and when they last reported I was unhappy with their guidance, even though I knew it was a sandbag it seems pointless to me. Like Cloudflare, we can expect a beat and raise each Q now.

 

Current Position: --> as of last week

 


Earnings Call:


Nice start to the year, nothing "super blowout", but the 20% growth is better than what I expected. Huffman says it was related to increasing momentum and demand environment improvement, something I want to continuously year for the next three years from them. Billings growth has accelerated for the third consecutive quarter. These are a few things I wanted to hear, after being disappointed with their last Q and their guide. Obviously there are some kinks to work out integrating Rimilia and growing in the AR space which is seeing nice demand and interest.


Expanding wallet share among their current customers was a bright spot as businesses opened up their wallets to spend on digital transformation. Management notes that given the logos they are acquiring as customers, they believe enterprises are opening back up their wallets and getting ready to spend on this type of transition. CFOs are getting better insights into the macro environment, leading to digital spending.


What is nice is that the international front is one again expanding, European and Asia Pacific markets had improved heavily. International revenue accounted for 27% of the total, up from 24% in the prior year. Do not forget, Rimilia was based out of the UK so I do hope they are picking up international footprint more often. The SAP partnership increased to 25% of total revenue, this is a blessing and a risk.


Now that we have two quarters with account receivables automation, there are a growing number of deals for both new and existing customers --> could be leading to the strength in backlog the past 3 quarters.


Deals? Yes, always deals. BlackLine said their largest deal was a Fortune 50 company based in Southeast Asia. Following the surge of e-commerce and online e-payment demand, the company needed to introduce automation to switch from the manual process in the financial close --> in comes BlackLine.


I love reading about these examples that Marc Huffman and Matthew Prince give us into how their customers are utilizing and coming across their businesses and putting it to use.


I also received some very solid use case from a member of the Fiducia website. The member is internal audit at a logistics business, and they had started using BL a year ago and the company loves it. The individual states that the software makes the auditors job much easier in many ways. One way is that it tells the individual when a reconciliation was prepared and approved, BlackLine also contains all the supporting documents so the individual using it does not have to go to each person for information and download it themselves. It is "seamless". BlackLine was also recommended by the external auditors, of which BlackLine has numerous partnerships with.


The adoption of BlackLine may be slower than adoption of most software, but improving the manual process of closing is at the core of they do. Excited for this company.


Broader sentiment on the call felt much better, improved I should say. Gross margin impact on integrating Rimilia should not be too bad, still very high 70s and low 80s.


But, will not contribute materially this year as we already know. I think you can nibble on BlackLine equity here for long-term.

Management noted that there is strong interest in Rimilia, so that is really what I wanted to hear this Q.


Below is their target market operating model, G&A has come down.

 

Not too much to complain about this quarter, I guess this is just a sit and wait while they execute on Rimilia. Maybe valuation has to come down a bit, which I am fine with. Better for long-term performance. It is a very solid business at the end of the day, understand superior management.

One issue I have is that their deals are not a lot of $, but the valuation is expensive. It is all about execution from here on out. I need to see rapid growth in, and a huge uptick in customer/users/top-line. I will care about the bottom line when the time comes.


I am most critical of this company, of all 5 I own. I think there is major potential given what they are doing. Now, to finish this, let us answer our 10-Q questions.


  1. What drove revenue? --> Primarily due to an increase in number of customers, users (existing), and new products purchased.

  2. What drove cost of revenue? --> Salaries, benefits, and SBC (hopefully this gets cut within 3YRS)

  3. What drove S&M? --> Salaries, sales commissions, SBC, incentives..

  4. What drove R&D? --> same thing + capitalized software costs, decrease in net expenses

  5. What drove G&A? --> same thing

 

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