Investor Day: BlackLine

Updated: Mar 11, 2021

One of my favorite back office businesses I am invested in for the long-run just had their investor day presentation. I will use screen shots from the presentation, which can be found here. BlackLine operates in over 130 countries with 3,400+ customers. They have 60% of the Fortune 50 as customers, as well as 46% of the Fortune 500 as customers. BlackLine claims that the traditional manual accounting processes are NOT sustainable, hence the chart below showing the hectic chaos that comes out of it.

Key Benefits of a Modern Accounting Software System:

  • Unification

  • Automation

  • Continuous real-time data

Software helps keep things in a unified manner, you can integrate systems as well as your data to see it all in one place, and you can standardize your businesses processes and look at things from a global perspective as well. Automation is where we are headed, BlackLine allows a business to reduce busy back office work. They do this by automating the ordinary daily busy work, giving accountants more time to analyze the work and focus on more important tasks. Lastly, the software gives you a continuous real-time look at what is happening and help you align the needs of your business as it happens.


BlackLine has a 2.77x ROI (Return on Investment), essentially, their solutions generate $2.77 for every dollar a customers invests in their technology. I feel this is only going to improve over the years with more solutions and better acquisitions. Back-office has been an area of under investment, and for this reason I am invested in BlackLine. Financial close and Account Receivables automation is not an area most investors think about, but here at Fiducia we like to think different with an open mind and grow our capital at a steady pace where others may not be looking. The pandemic has accelerated the global economy and the shift to modern software, putting a bight spotlight on the back office since those tasks can be pesky, monotonous, and manual.


Large Addressable Market: $28b+

BlackLine LTM (last twelve month) revenue is $325m, compromised of 3,400 customers. There is a large runway for growth given proper execution and I will gladly pay a premium as long as there is execution in a business.


Focused Themes:


BlackLine has a slide on a few focused themes for 2021. Customer Value and ARR (Annual Recurring Revenue) Growth, Platform Modernization and Scale, and Operational Excellence.


Customer Value, BlackLine planes on doing this through AR products and integration through the Rimilia acquisition. Platform Modernization, BlackLine wants to build the next layer of the platform and have scalable data transformation services. Within operational excellence, they want to build quality, security, and operational controls for ease of use for customers.


Now we know what to focus on in quarterly reports, updates on these top strategic themes!

Examples of customers:

Customer Growth Over Time:

BlackLine relies on leveraging their partner ecosystem, below you can see some of the strong partners they have for product expansion, this can be both a blessing and a giant risk so as an analyst we have to monitor closely.

What are the characteristics that allow BlackLine to continue to drive growth and innovation?

  • Customer centric business

  • Strong partner ecosystem

  • Scalable and configurable

  • ERP agnostic

  • Unified customer experience

I think the strongest aspect of BlackLine is their partner ecosystem and this will continue to drive their growth. I also do believe that this business is mostly recession proof because of the increased efficiency they provide and ROI for the users of their software. What is important to people? Time.


Global Accounts Receivable:


Overview:

  • Time

  • Risk

  • Cost

  • Morale

The manual AR process is not sustainable as BlackLine notes, manual payment processes consume up to 50% of cash application effort and it takes too long. There is a risk of working capital, $1.5 trillion to be exact that is held on global balance sheets. The cost is important as well, bottom performers according to BlackLine spend 1,500% more per invoice compared to top performers (it gets expensive). Lastly we have Morale where 34% of productivity is lost for disengaged employees. So from this, we can extrapolate there will be a lot of focus on the AR segment as it seems pesky, large, and another area for time & cost improvement for enterprises.


Accounts receivable is one of the largest assets on a business's balance sheet, yet most continue to process transactions manually which leaves room for manual error, especially with work from home now, and this also leaves room for a company like BlackLine to come in and invest in it. We invest differently at Fiducia.


Financial Summary:


Under-penetrated TAM, compelling land and expand model, durable business model, and investment to drive long-term profitable growth, are the messages that BlackLine wants to get across to shareholders. Customers since 2016 have had an 18% CAGR, and the thousands of users have had a CAGR of 15% since 2016. I honestly would like to see these numbers accelerate in the next 5 years given managements notes on acceleration in this type of software. They must prove to me in the numbers, which is why I am heavily focused on them in 2021+, and Anaplan. Where is revenue derived from in their partnerships?

Let us look at the current valuation of BlackLine, per analyst estimates (not mine). The name by any means is not cheap, but honestly I dont think it will ver be "cheap".

(Source: Koyfin)


Relative to other names, an EV/Sales of 18.8x NTM is not too bad, but let us zoom out further because I am paying for FUTURE growth which to mean is at least 3 years out. Below are MY personal estimates and relative to what we see in current markets, it looks slightly better. I am assuming revenue accelerates over the years..which is should.

They are sticking to their target operating model and are within the limits and goals of certain criteria as of now, which is strong. These are just my personal, super high end estimates. I am a shareholder of the business and will monitor and adjust accordingly to what I see and hear. Something I was taught, you better be able to close a position completely if your thesis starts breaking down.

 

I think BlackLine has some room to expand, the last call put them in the penalty box for a quarter which is fine. I am not in this for short-term returns, I am in it for long-term CAGR (Compound Annual Growth Rate). People ask me personal price targets, normally I dont have any because in time anything can happen to a business, for BlackLine in my mind I have roughly $200/share as fair value given their market opportunity. That would put them at a market cap at around $11,557,287.00 using February 18, 2021, 57,786,435 shares outstanding. The closer is moves to fair value for me, I may potentially shave and add elsewhere. I am an opportunistic investor. I honestly could see a larger business, SAP, come in and buy them in a large deal. There becomes a time when the price you pay becomes too expensive relative to your growth expectations, I think BlackLine can surprise us and maybe $200 is too conservative within 3-5 years.


The Account Reconciliation intelligence will be available (expected) in Q2'21 so I do expect hits to margins and 2021 could very well be a boring year.


The chart looks very attractive, bouncing off its 200 day moving, on strong volume nonetheless... so I am watching. This was a much needed pullback.

Below are the analyst consensus price targets, high of $163 (we can assume these are one year price targets, and I do think fair value is around $200 so really I am not *too* far off from street estimates.


Well, that is my summary and thought process on BlackLine for now. Next post will be after SharpSpring reports their earnings on 3/16. I am excited for this one and may add on weakness!

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