Most people have month-end financial tasks to ensure their accounts are in order. Whether it's balancing the checkbook, paying bills, or figuring out how much was spent on groceries, understanding what goes on during the month is critical. Wouldn't it be nice if a program linked everything together and generated financial reports? BlackLine (NASDAQ:BL) provides software for businesses that accomplishes this task.
BlackLine combines multiple inputs into a single information stream
Undoubtedly, companies have more complicated finances than the average household. Every line that appears in a quarterly income statement, cash flow statement, or balance sheet is the product of multiple inputs across various teams. Enterprise resource planning (ERP) systems are crucial in every business to handle activities like supply chain management or accounting. Many large companies incorporate different ERP systems across segments to manage operations efficiently.
But what isn't efficient is combining all ERP outputs to create coherent data that goes into quarterly reports. BlackLine is integrated with more than 30 ERP providers like Oracle, Workday, and SAP. The invaluable information taken from ERP systems contributes to quarterly reports.
When public companies release their financials each quarter, it gives investors insight into how the business is doing. What's sometimes forgotten is the value those reports have internally. With so many inputs, getting a grasp on what is going on throughout the business can be difficult for management. BlackLine's product suite allows for continuous accounting implementation. With this ability, management can get an accurate picture of the business at any point, and the visibility provided by BlackLine allows for management to make better decisions.
COVID-19 has dampened BlackLine's sales efforts
BlackLine helps keep businesses' financials in order, but how is it doing? Unlike many of its software-as-a-service (SaaS) brethren, BlackLine was hit hard by COVID-19. The pandemic has had a noticeable effect on retention and upsell initiatives. Its net revenue retention rate fell from 110% in 2019 to 106% in the first half of 2021 as revenue growth also slowed. However, BlackLine still grew its customer count 15% year over year to 3,704 during the third quarter.
Once pandemic-related headwinds like supply chain issues subside, companies will have more bandwidth to focus on improving other parts of their operations. BlackLine has four new products it believes represent over $800 million in annual recurring revenue with existing customers. This would translate into BlackLine nearly tripling its total revenue, without adding any new customers. The company also saw the number of customers spending more than $1 million nearly double in 2020.
BlackLine's business model is to land and expand, where it brings customers onto its platform and then sells more licenses or products to increase their spending. Customers who have been with BlackLine a long time spend more as you can see below.
|Annual Revenue Expansion by Customer Acquisition Date|
This means customers who have been utilizing BlackLine's products since 2012 are now spending over four times more than its newest customers. This powerful trend will drive growth for the company.
Customers and reviewers praise the product
BlackLine's solutions are positively rated by its customers -- it received 4.6 stars out of 5 across 314 reviews according to Gartner. It was also named the 20th best software company by The Software Report, placing it among companies like The Trade Desk, Salesforce.com, and Twilio.
In the earnings results BlackLine reported on Nov. 4, both customer count and net revenue retention rate continued to trend in the right direction. While investors commonly track revenue and net income, the other two metrics are more important for BlackLine, given the way customer relationships tend to see increased spending over time.
Trading at over 19 times sales, BlackLine isn't a cheap stock. With a market cap of $7.6 billion, its small size allows for investors to get in before the company captures more of its addressable market. At the end of the second quarter, management claimed that market was worth more than $28 billion, a far cry from its $387 million in trailing 12-month revenue. With a huge runway for growth, it is a great stock for investors who are willing to watch as BlackLine expands its relationship with more and more customers over the next decade.