BlackLine's (NASDAQ:BL) Posts Q3 Sales In Line With Estimates But Guidance Underwhelms

Radek Strnad /
2022/11/03 4:32 pm EDT

Accounting automation software maker Blackline (NASDAQ:BL) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 22.7% year on year to $134.2 million. However, guidance for the next quarter was less impressive, coming in at $139.5 million at the midpoint, being 2.12% below analyst estimates. BlackLine made a GAAP loss of $18.9 million, down on its loss of $9.71 million, in the same quarter last year.

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BlackLine (BL) Q3 FY2022 Highlights:

  • Revenue: $134.2 million vs analyst estimates of $134.2 million (small beat)
  • EPS (non-GAAP): $0.21 vs analyst estimates of $0.09 ($0.12 beat)
  • Revenue guidance for Q4 2022 is $139.5 million at the midpoint, below analyst estimates of $142.5 million
  • Free cash flow of $16.5 million, up from negative free cash flow of $5.06 million in previous quarter
  • Net Revenue Retention Rate: 109%, in line with previous quarter
  • Customers: 4,060, up from 4,003 in previous quarter
  • Gross Margin (GAAP): 75.8%, down from 77.6% same quarter last year

“BlackLine reported solid financial results this quarter as customer demand for finance and accounting solutions that drive efficiency and automation remained healthy,” said Marc Huffman, CEO of BlackLine.

Started in 2001 by software engineer Therese Tucker, one of the very few women founders who took their companies public, BlackLine (NASDAQ:BL) provides software for organizations to automate accounting and finance tasks.

The demand for easy to use, integrated cloud based finance software that integrates tax and accounting operations continues to rise in tandem with the difficulty workers find trying to use existing accounting tools like spreadsheets given the growing volume of finance data littered across a multitude of enterprise applications. A related demand driver is the secular increase of e-commerce and rising adoption of modern point of sales and payments platforms which easily integrate with backend financial software.

Sales Growth

As you can see below, BlackLine's revenue growth has been strong over the last two years, growing from quarterly revenue of $90.1 million in Q3 FY2020, to $134.2 million.

BlackLine Total Revenue

This quarter, BlackLine's quarterly revenue was once again up a very solid 22.7% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $5.79 million in Q3, compared to $8.24 million in Q2 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates BlackLine is expecting revenue to grow 20.9% year on year to $139.5 million, in line with the 20.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 20.5% over the next twelve months.

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Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

BlackLine Net Revenue Retention Rate

BlackLine's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 109% in Q3. That means even if they didn't win any new customers, BlackLine would have grown its revenue 9% year on year. That is a decent retention rate and it shows us that not only BlackLine's customers stick around but at least some of them get increasing value from its software over time.

Key Takeaways from BlackLine's Q3 Results

With a market capitalization of $3.31 billion BlackLine is among smaller companies, but its more than $1.04 billion in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was nice that BlackLine improved their gross margin, even if just slightly. And it was good to see solid revenue growth. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was a slowdown in customer growth. Overall, it seems to us that this was a mixed quarter for BlackLine. The company is flat on the results and currently trades at $49.02 per share.

BlackLine may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.