Accounting automation software maker Blackline (NASDAQ:BL) beat analysts' expectations in Q4 FY2023, with revenue up 11.3% year on year to $155.7 million. The company expects next quarter's revenue to be around $155 million, in line with analysts' estimates. It made a non-GAAP profit of $0.69 per share, improving from its profit of $0.35 per share in the same quarter last year.
BlackLine (BL) Q4 FY2023 Highlights:
- Revenue: $155.7 million vs analyst estimates of $154 million (1.1% beat)
- EPS (non-GAAP): $0.69 vs analyst estimates of $0.55 (25.7% beat)
- Revenue Guidance for Q1 2024 is $155 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for the upcoming financial year 2024 is $643.5 million at the midpoint, missing analyst estimates by 2% and implying 9.1% growth (vs 12.9% in FY2023)
- Free Cash Flow of $35.34 million, up 12.5% from the previous quarter
- Net Revenue Retention Rate: 106%, in line with the previous quarter
- Customers: 4,398, up from 4,368 in the previous quarter
- Gross Margin (GAAP): 75.8%, in line with the same quarter last year
- Market Capitalization: $3.73 billion
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.
Accountants still rely on spreadsheets to validate, reconcile, and close their books. At the end of the month, these spreadsheets are manually uploaded to a shared drive where the balance on each account is merged. This process is error prone and leads to rows and columns being deleted by mistake and also consumes a lot of time that can be spent doing more productive work.
To solve these problems, BlackLine provides cloud-based software as a service to automate routine accounting processes so that accountants can focus on more important tasks. The software provides a central place to unify data across multiple departments and business applications such as resource planning systems, making it faster to validate and reconcile financial transactions with customers and partners. It also gives organizations better visibility into their financial health by providing dashboards to quickly identify business risks and tasks to prioritize and this can be accessed by anyone from anywhere.
Book reconciliations are one of the most time demanding parts of accountant’s job and finance managers often hold multiple meetings in a week to close their accounts. With BlackLine, companies can automate more than 50% of the account reconciliation work and as a result, accountants can focus on analysis, risk mitigation, and exception handling.
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.
Competitors include large software vendors such as Oracle (NYSE:ORCL) and SAP (NYSE:SAP) as well as cloud software providers such as Workiva (NYSE:WK), Anaplan (NYSE:PLAN), and Workday (NASDAQ:WDAY).
Sales Growth
As you can see below, BlackLine's revenue growth has been mediocre over the last two years, growing from $115.3 million in Q4 FY2021 to $155.7 million this quarter.
This quarter, BlackLine's quarterly revenue was once again up 11.3% year on year. However, its growth did slow down a little compared to last quarter as the company increased revenue by $5.02 million in Q4 compared to $6.13 million in Q3 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that BlackLine is expecting revenue to grow 11.5% year on year to $155 million, slowing down from the 15.6% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $643.5 million at the midpoint, growing 9.1% year on year compared to the 12.8% increase in FY2023.
Customer Growth
BlackLine reported 4,398 customers at the end of the quarter, an increase of 30 from the previous quarter. That's a little slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.
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's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 106% in Q4. This means that even if BlackLine didn't win any new customers over the last 12 months, it would've grown its revenue by 6%.
BlackLine has a decent net retention rate, showing us that its customers not only tend to stick around but also get increasing value from its software over time.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. BlackLine's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 75.8% in Q4.
That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, sales and marketing, and general administrative overhead. BlackLine's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that BlackLine is controlling its costs and not under pressure from its competitors to lower prices.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. BlackLine's free cash flow came in at $35.34 million in Q4, up 74.4% year on year.
BlackLine has generated $99.02 million in free cash flow over the last 12 months, a solid 16.6% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from BlackLine's Q4 Results
We were also happy its revenue narrowly outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance was below expectations and its customer growth decelerated. Overall, this was a mediocre quarter for BlackLine. The stock is flat after reporting and currently trades at $58.45 per share.
Is Now The Time?
BlackLine may have had a bad quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
Although BlackLine isn't a bad business, it probably wouldn't be one of our picks. Its , and analysts expect growth to deteriorate from here. And while its strong gross margins suggest it can operate profitably and sustainably, unfortunately, its customer acquisition is less efficient than many comparable companies.
The market is certainly expecting long-term growth from BlackLine given its price-to-sales ratio based on the next 12 months is 6.4x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that BlackLine doesn't trade at a completely unreasonable price point.
Wall Street analysts covering the company had a one-year price target of $62.29 per share right before these results (compared to the current share price of $58.45).
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