Conviction on BlackLine

Updated: Oct 17, 2020

Another reason why I am increasingly becoming more bullish on BlackLine is the under-owned aspect of it across the investing community, not just Twitter, but other investors I have talked to. Some people haven't even heard of them! These are the type of opportunities that are ripe for quality growth. I have an introductory post on the site, but this name can and will be added on dips for my portfolio. I think this company is the second coming of Veeva Systems, of which I owned, and I sold…too early! Added around $115 and sold around $272. Not a mistake, as I really loaded up on LVGO as my single best investment/trade this year, but sold out because I don’t want to own Teladoc currently. I am not sold on the story yet, could be wrong.

I want to start off by just giving my $.02, among the investor community there are egos, and there are no egos. Once you think you are smarter than the market, the market will eat you up and spit you back out. I stand by my thesis on always being dynamic. If you cannot remain dynamic, you will lose.

It is actually really hard to find any relatively good articles on BlackLine, it doesn’t seem to be covered by many. There are some seeking alpha ones but they are pretty cookie cutter in my opinion. A lot of the information I am about to go over is essentially from their investor relations website, which, for any security you may own, I highly recommend always starting there.

BlackLine is basically making spreadsheet work and manual work, automated. Where is the world headed? Automation, which brings me into why i started a position in $ZBRA (warehouse automation). Back to BlackLine. Look, I am going to make this simple. High margin growth names are in favor, and I think they will stay in favor for longer period of time than most people think. What, are you going to buy Coke? $KO. AT&T? Now, obviously this is all risk tolerance and $BL is not for everyone, nor does it have a space in all portfolios. But, if you are younger, exposure to these names can be rewarding in the future. I see far too often people trading in and out, that game is over for me. It has worked in the past for me, but I am slowing it down now and just buying on dips (Target dips for me are in 10% intervals).

A great example of BlackLine business in action is this https://investors.blackline.com/news-releases/news-release-details/red-wing-shoe-company-inc-wins-2020-nucleus-research-award. Basically, streamlining finance and accounting processes, the company was able to achieve 379% ROI (Return on Investment) automating their processes. I am interested. I would love to see more of these articles and experiences. Goodbye legacy accounting systems! https://www.blackline.com/customers/the-coca-cola-company/

BlackLine is also not afraid to spend some and acquire another company that can further their business model. https://investors.blackline.com/news-releases/news-release-details/blackline-acquires-rimilia-add-ai-powered-accounts-receivable. This company is a leading provider of AR automation solutions to control cash flow and cash collection in real time. (Read the article, very good information and nuggets that shareholders should know). This tells me management at BlackLine knows when to spend and buy a company, benefitting their end markets and customer growth. I am looking forward to hearing management speak of this acquisition come earnings call! The best part, BlackLine is paying $150m in cash, cash on hand!

Transparent financial reporting is critical, and BlackLine is at the front of it! I mean look, Price/Sales is not too too bad, given what I am seeing in other names. 17x next year and 12x the following fiscal year? Yeah I am totally in and will add on dips with revenue growing solidly above 20%...these assumptions are fairly conservative in my mind too, I think growth will accelerate as with CloudFlare. So these P/S could be wrong (either way). If I based all my investments off valuations I would never pull the trigger. I firmly believe when strong management executes, share price will follow over time, unprofitable companies need executing management, I believe I have found that with NET and BL.

I just want to point out the company in Q2 had operating cash flow of $9.6m, compared to $8.6m in Q2 of 2019. 12.5% increase YoY in operating cash flow, I like. Free Cash Flow of $3.5m, compared to $6.2m in the 2Q of 2019 (we all know COVID took a hit and BlackLine is supporting their customers as they see fit) so im FINE with that decrease. BlackLine unveiled a COVID-19 quick-deployment remote audit package which helped customers prepare for first time remote audits, that is huge! Shows the company cares about their customers and will take a hit personally to do so, this gains trust and confidence in their customers. I know I would be a user.

For this next quarter, total GAAP revenue is guided to be between $84.5 to 85.5, lets just say $85m. Last year in this quarter they hit $74.9m in Revenue, so that would give us an increase of 13%, which in my view is lower than what I want to see, but given the back drop… there could be room for a surprise.. Full year GAAP 2020 revenue is expected to be in the range of $335.5 to 338.5m, midpoint 337m for 2020. Last year 2019 revenue came in at $289m That is a hefty 16.6% increase which I can stand by given this years "sudden" remote work and sales drop. I give the company major props for just giving guidance this year.


Based on my estimates for re accelerating growth, I have 13.8x 2021 sales and 11x 2022 sales. I am long. Will number tweak as time goes on!

https://investors.blackline.com/news-releases/news-release-details/blackline-announces-second-quarter-financial-results-2

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