BlackLine Fourth Quarter 2020

Updated: Apr 26, 2021

BlackLine is a rather large position for us, and we have them at an average cost of $106.21. This is a name we averaged up as well, we have bought in multiple lots as shown down below:

I have no issue showing and being transparent with my long-term portfolio, I want you all to build this mindset when you start buying businesses. Price reaction on BL in the short-term means nothing to me because 1) the multiple had expanded massively in the 4th Q and YTD, and 2) they just did not deliver what the market wanted. We will dive into the call now.


Marc Huffman:


Investing heavily in BlackLine in 2020, history that has shown businesses who invest in a downturn are equipped to respond to demand when the economy recovers. I can agree with this, the acquisition of Rimilia is the entry into an adjacent market for them in accounts receivable automation, growing their (here comes the buzzword) "TAM" to $28b. BlackLine continues to see increasing trend of large deals for both new and expansion, businesses are proving to them they are committed to digital transformation projects. With three consecutive quarters of large deals, the 2021 pipeline looks ready and ready to expand. BlackLine continues to leverage their partner ecosystem, notably with SAP. I found the intro to ease concerns, I like what Marc Huffman had to say and how he went about it.


Mark Partin (CFO):


Full year 2020, total revenue grew 22% to $351.7m, Partin says they see an improvement in demand through the year and continued through the 4Q. Fourth quarter revenue growth for Fiducia did not impress and while I was disappointed (i was expecting 25% growth), BlackLine came in at 19% growth YoY. The market tends to shoot first and ask questions later and as an analyst we have to find out WHY and figure out if this is a long-term buying opportunity. Management notes that the demand environment has steadily improved in 2020 and through the fourth quarter, but the 19% revenue growth represents a decline from the prior year result from the macro environment. Here is where we have to watch, we as investors cannot become complacent with a company blaming macro issues. Yes, it was obviously a problem, but we need to dig deeper and understand if this will be a recurring issue. I have faith in management they will navigate this, but if it continues to show up in reports we will have to second guess ourselves.


International business was 26% of total revenue, up 24% in the prior year. SAP revenue totaled 24% of total revenue, which is up from 23% in Q3. The SOLEX partnership accelerated in Q4, 70% of large deals in the Q involve the partner. Ending the quarter with 207 net new customers, totaling 3,443 customers. This includes the addition of 100 .net new customers from Rimilia, so really BlackLine organically had 107 net new customers which is not bad at all.

I am disappointed in the DBNE, I want to see improvement here over the next few quarters. Management states again, the down tick is due to macro demand in COVID. Generating $15m in operating cash flow and $8m in free cash flow for the quarter, this is good. Finishing the year off strong with $543, in cash equivalents and marketable securities.


Over the years, BlackLine is seeing improved operating leverage which is good, above 13% net income margin in 2020. Now in 2021 the company expects margin compression (I think this is looking more like a buying opportunity now) due to the targeted investments in public cloud infrastructure for integration of Rimilia. 2-3 points of margin compression near-term.


I will stick with this name through 2021, I am interested to start seeing Rimilia show up and more comments on the integration process. I am keeping this brief summaries short and to the point, I am excited for what our Businesses have in store.


Many of you reach out to me and thank me, I appreciate each and every one of you. WE will change the world and the investing landscape. Opportunities always exist. I believe BL is an opportunity here, along with 50dma. Next week we may enter for an options swing trade so stay tuned!


Fiducia

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