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

Petr Huřťák /
2023/11/02 4:40 pm EDT

Accounting automation software maker Blackline (NASDAQ:BL) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 12.2% year on year to $150.7 million. The company also expects next quarter's revenue to be around $154 million, slightly below analysts' estimates. Turning to EPS, BlackLine made a non-GAAP profit of $0.51 per share, improving from its profit of $0.21 per share in the same quarter last year.

Is now the time to buy BlackLine? Find out by accessing our full research report, it's free.

BlackLine (BL) Q3 FY2023 Highlights:

  • Revenue: $150.7 million vs analyst estimates of $149.9 million (small beat)
  • EPS (non-GAAP): $0.51 vs analyst estimates of $0.35 (47.1% beat)
  • Revenue Guidance for Q4 2023 is $154 million at the midpoint, below analyst estimates of $155 million
  • Free Cash Flow of $31.4 million, up 74.9% from the previous quarter
  • Net Revenue Retention Rate: 105%, in line with the previous quarter
  • Customers: 4,368, up from 4,279 in the previous quarter
  • Gross Margin (GAAP): 75.6%, in line with the same quarter last year

“This was a busy quarter for BlackLine marked by solid financial results and progress against key initiatives,” said Owen Ryan, co-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.

Tax Software

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 solid over the last two years, growing from $109.4 million in Q3 FY2021 to $150.7 million this quarter.

BlackLine Total Revenue

This quarter, BlackLine's quarterly revenue was once again up 12.2% year on year. We can see that BlackLine's revenue increased by $6.13 million in Q3, up from $5.59 million in Q2 2023. While we've no doubt some investors were looking for higher growth, it's good to see that quarterly revenue is re-accelerating.

Next quarter's guidance suggests that BlackLine is expecting revenue to grow 10% year on year to $154 million, slowing down from the 21.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.7% over the next 12 months before the earnings results announcement.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Product Success

One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.

BlackLine Net Revenue Retention Rate

BlackLine's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 105% in Q3. This means that even if BlackLine didn't win any new customers over the last 12 months, it would've grown its revenue by 5%.

Despite falling over the last year, BlackLine still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.

Key Takeaways from BlackLine's Q3 Results

With a market capitalization of $2.93 billion, BlackLine is among smaller companies, but its $1.16 billion cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

We were impressed by BlackLine's strong growth in customers this quarter. We were also glad its gross margin improved. On the other hand, its revenue guidance for next quarter underwhelmed. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 2.2% after reporting and currently trades at $52 per share.

So should you invest in BlackLine right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

Join Paid Stock Investor Research

Help us make StockStory more helpful to investors like yourself. Join our paid user research session and receive a $50 Amazon gift card for your opinions. Sign up here.

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