Chit Chat Stocks - Blackline (BL) | Deep Dive

Episode Date: October 29, 2020

Blackline is a cloud based service designed to cover the entire financial close process. Listen as your hosts, Ryan and Brett, welcome on Ian Gray. Ryan discusses the business and its history (1:45). Brett will dive into the industry (6:00) and Ian analyzes management and ownership (8:55). Stayed tuned after the break to find out if Ryan, Brett and Ian are more or less interested in Blackline. As always enjoy the show! Subscribe to 7 Investing with the code "CCM": https://7investing.com/subscribe/ Follow Ian and check out his work on Twitter: https://twitter.com/IanGrayLive Follow Chit Chat Money on Twitter: https://twitter.com/chitchatmoney Subscribe to Chit Chat Money on Youtube: https://www.youtube.com/channel/UCG5Ni-SI-jyrEsoNUhqftNQ --- Support this podcast: https://anchor.fm/chit-chat-money/support Learn more about your ad choices. Visit megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

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Restrictions apply. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investment. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are not financial advisors. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guest is not formal advice or a recommendation.

share. Now, please enjoy this episode. All right. Welcome in. This is the Deep Dive Show on Chitchat Money. We're going to get into Blackline today. But first, I want to ask, since we're heading into earnings season, Ian, Ryan, how's your watch list doing? How's portfolios? Up or down? Thumbs up, thumbs down? I mean, it's been good, but we have our little conundrum where we have to be out of some stocks for the time being. So watching everyone just celebrates their wonderful performance as i'm on the sidelines i see stitch fix go up every day and just curl up in a ball chuck the wall but ian how's any yeah well i've still i've still got some stitch fix in my account so i'm getting to reap the fruits of that

um but yeah it's just it's been crazy as everybody knows these last few weeks just up and down and up and down and um you know i think with these this earning season this week we're going to see some, hopefully get some better defined numbers and be able to get a little more accurate sense of where the market's going over the next few months. Yeah, I mean, once big tech reports, I mean, that's usually the indicator, although I hate to use that as a rule of thumb, but we're actually going to be talking about a company that's reporting today, which would be Thursday. So when this releases, it's actually very good timing. And Ryan, I'll kick it over to talk about Blackline. Yeah. And just to let you guys know, they will report. So this is coming out. We're

recording this on Tuesday. They're reporting third quarter on Thursday. So this will all be second quarter numbers. We will not have any of the third quarter numbers. But Blackline, if you don't know, is a cloud-based enterprise software company that aims to automate accounting. So the second sentence on their 10K states, our secure, scalable platform supports critical accounting processes such as the financial close, account reconciliations, intercompany accounting, and controls assurance basically they're trying to optimize the back office whether it's finances accounting they're basically just trying to make it easier or make the lives of the accountants easier um and maybe eventually replace them as well but uh in due time right they're just making

it a little easier um the history though black line was founded in 2001 by is it terese or therese Therese. Therese? Okay. Therese Tucker. And then before starting Blackline, Tucker was the CTO at SunGard Treasury Systems, which provided software and processing for financial services. I read their entire Wikipedia page. I could not understand what they did. They are no longer in business. So maybe they should have had a better Wikipedia page. Maybe they should have described what they did better. But anyways, Tucker started Blackline with the goal of just the goal of replacing Excel for all companies and making it easier in the financial close process.

She said that she talked to a lot of accountants and the biggest struggle was the financial close. And if you don't know what that is, that's basically when the accounting cycle is coming to an end and the accountants have to verify and adjust all the account balances in order to produce the financial reports for the company. Apparently, it's this stressful, just strenuous process they're losing sleep which i mean that sounds bad to have like all your work in one quarter come down to like a few days yeah um so their goal is just to automate that whole process and make it not nearly as painful as it was when it was manually done without the work kind of yeah i think so in you yeah yeah so two summers ago i actually worked in a finance office

for a small organization. And, um, that's kind of what I did. And so when, when the financial close came around, it was, you know, you'd print out some sheets of paper, be highlighting some stuff on this one, put it, plugging some stuff into an Excel sheet, trying to get the accounts to balance, reconciling bank accounts, um, tracking down other people in the office to figure out if this, um, if this charge was supposed to go into the software account or a hardware account, trying to, you know, it's just, it's kind of a nightmare. You're running all over the place and trying to get people's approval and figure out where charges are. So it's not surprising that accountants wanted, this was the chief thing they wanted fixed. It's not a

fun process for most accountants. Okay. And so Blackline, basically what they're doing is they just smooth out the entire process. It's all submitted in real time as opposed to crunching the numbers at the end. Am I getting that right? Yeah. So they're trying to promote this idea of continuous accounting which will lead to some of that it also allows for um it uses ai technology to um to instead of having to manually enter a lot of functions or click through a lot of boxes which a lot of erp providers and accounting software it's just endless boxes that you're clicking through forms you're filling out journal entries to make it tries to take some of that off the accountant's plate especially the ones that are that are the easy ones and so it automates

solve those ones so the accountants can focus on some of those more complex problems that they have to use their brain instead of just click through stuff. Sure. Blackline had no outside funding until 2013. So 12 years without any outside funding. And then Silver Lake Partners backed the company with I think $200 million. I might be mistaken in that somewhere around there. And they IPO three years later in 2016. So yeah, so there's your history. Yeah, not too young of company, but just hitting on their five-year mark as a public company. I'm going to hit the industry and landscape. It's pretty simple for them, but I'm going to just have something they've read in their 10K. So they said, the market for accounting and financial software is competitive and rapidly

evolving and requires a deep understanding of industry standards, accounting rules, and global financial regulations. So there's a high hurdle rate to understand all this stuff because there's all those rules, GAAP accounting, what is it, FASB, all that stuff. There's just tons and tons of rules and you have to follow that so it takes a lot of you know fixed cost and understanding all those things and you probably have to have a lot of experts on staff um their main competitors are a company named trintech which is a little smaller and there's oracle's hyperion product which i think is the legacy one but besides that they're kind of in a zero to one industry although obviously accounting isn't a zero to one industry but they're trying to make it so

i mean replacing all the legacy systems they're kind of leading the way automating all these accounting practices um it's just not something that a lot of other companies do so it's a big risk for them but it's you know if they succeed they're kind of on their own at least at the moment what do you mean by zero to one so oh i guess that's the old peter teal theory that instead of trying to enter another market with like a dozen competitors you create your own market so that's kind of what black line did here although again it's not just accounting it's the automated accounting automating what accounts receivables and all that stuff correct you yeah yeah it focused a lot on um uh bank reconciliation map and transaction matching in the beginning but

yeah now they've expanded out a little bit more um they okay so just for reference i know tam we do it's it's a little overrated but i'd like to have that just as a reference so the estimates for the accounting software market were about 12 billion dollars in 2019 and it is expected to grow at about 8.5 percent year over year to 19.6 billion dollars in 2025 those are just estimates a lot of times these industry things are wrong but it's it's just a nice conservative you know back of the napkin math you can have there they are writing um a there's there's i don't know what they call it riding the wave they have a you know growing market that they they're not trying to compete against themselves almost and then and we tend to disregard a lot of tam

estimates i mean there are certain instances when the tam matters but most of the time you're like like zillow would be like yeah we have like a four trillion dollar tab because like that's how much real estate is in the u.s or whatever like that doesn't matter but for even for blackline i don't think it's particularly useful because a lot of the spend across the market i'm putting and so it's like these companies weren't spending anything on it to begin with so that's not calculated in the tam they're creating like you said their own market so they're creating a lot of new spend. Yeah, they're taking out operating expenses and giving that to Blackline and hopefully getting a nice return on that investment. So we'll hit up next management and ownership.

Ian has that. Yep. So as Ryan mentioned, it was founded by Therese Tucker in 2001. She is still the CEO today. And really her attitude and her personality is all throughout the company. She's sometimes known by her pink hair, which comes with a little bit of a funny story she was supposed to be doing some marketing video for their marketing team years back and she's like I don't want to do it it's they're boring I don't want to do it um they're like no you have to do it and she's like okay well if you make me do it I'm gonna have pink hair and they thought she was joking well she showed up the next day with pink hair did the marketing video wanted it to be a little bit you know that's kind of the attitude of black line it's just a

little bit um just a little bit creative yeah and um and so and then she the pink hair has never left and so even today she has pink hair um another little interesting kind of anecdote is she actually um in the 2000s she divorced her husband um they kind of became friends again and then they remarried and so um i don't know what that says about the stock necessarily but it's also kind of part of the company lore and just kind of an interesting an interesting personality it's a buy signal for sure yeah huge buy signal i actually have that in my quantitative model Yeah, of course you do. Who wouldn't? But the other thing that's kind of interesting, Ryan sort of touched on this and mentioned it. They didn't receive any outside funding until 2013. And she talks a little bit about this in a podcast called Zero to One that is co-hosted by actually the COO of Okta, Frederick Karest, if anybody's interested. um but she she was always worried about she talked to people that were interested in funding

the company and interested in investing in the company but they always thought she had a lot of conversations with people who wanted to replace her as ceo and wanted to bring someone new in um or didn't think that she could grow the company and things like that and so she was really strategic and waiting for someone who saw the vision and trusted her as ceo um and so that's just another she kind of she bet on herself for sure um it's interesting now because she's actually transact transitioning out of the role of CEO and moving to just an executive chairman role. They brought in a guy named Mark Huffman two years ago to be the COO. He was the former president of worldwide sales at NetSuite and had a lot of experience growing that system and led

them through their eventual sale to Oracle. So he has a lot of experience in this was really brought in to rework the executive team, work on a new go to market strategy and really grow this software space, and he's had a lot of experience in it. And so I really like this transition. It's a transition with a historic, you know, a founder CEO, they bring in someone for a couple of years who had a lot of experience, they gave him the president title at the end, or at the beginning of this year. And then later this year, they've said, you know, starting in 2021, he's going to be the CEO. And so just has really seemed to be a smooth transition, bring someone in, test them out a little bit, continue to give them more responsibility, and eventually to lead the

company. And she's, like I said, she's going to stay on as the executive chairman and plans to really focus on customer happiness and building great products. While Mark focuses more on the go to market strategy and building out the, you know, some acquisitions potentially and things like that. It sounds very, I don't want a Silicon Valley typical story of you have the highly technical founder who really cares about the product. And then you have other people that are trying to fund the company that are saying like, no, we want a sales-based head of the company. Because at the end of the day, this is a sales business. And so it sounds like they finally got their way with that. And he's slowly, maybe in a better way, in a way that

Therese Tucker kind of liked, is slowly becoming the head of the company. Yeah, that makes sense. Yeah, I think that's a good way to put it. And then just a couple final notes. It has significant institutional ownership. About 70% of the company is owned by institutions. Vanguard, BlackRock, and Kane Anderson all own over 5%. And then it's got about 13.5% insider ownership. And Tucker still owns about 9% of the company. Mark Huffman is currently kind of building up his position, and I expect he'll continue to get some stock options and will become a more significant shareholder in the future. Right, right. Okay, I'll hit the valuation then. They have an EV of $5.2 billion, ticker BL, very simple there, and then a price of $94.96 as of we're recording on October 27th. So obviously that could change. And then if there's earnings, if they have a big miss or beat, that could change a lot. eb to sales currently is 16.2 they are unprofitable and then they have an eb to gross profit of 20 or 20 and a quarter so they have really high gross margin so that eb to sales while high is not as high as maybe someone that has gross margins in the 20 to 30 percent range they have margin adjusted eb to sales of 77.9 again i always say this but it is just eb divided about gross margin and sales growth. And that's quite high, but it's really lifted up because

their sales aren't growing that quickly. And they're kind of in an industry where they're not going to be able to grow that quickly because it's not like you just click a button and you onboard them. It's a whole big process. And it's more about the lifetime value of a customer being around for a decade. There's very little virality in this industry. Sorry, I said that word kind of weird, but it's like, you're going to maybe get 20% sales growth for the foreseeable future, but you're not going to have a huge 200% year or something like that, where you might get in some of the more customer facing SaaS names. That's typical. Yeah. For a B2B business. And then lastly on valuation, they have no dividend and then their shares outstanding have gone out up

at about three to 7% annually. So if you're investing, you should probably be thinking about that, you're going to have your shares diluted, I'd estimate, at at least 3% rate for the next few years here as they pay their employees and that executive team. Okay. I'll get into the earnings trailing. 12-month revenue was $321 million, up 26% year over year. Customers grew 3% quarter over quarter to around 3,138 total customers. So it seems like they're steadily growing their customer base. They had 80.3% gross margins versus 78% gross margins in the year prior, 23.6 million in operating losses, not nearly as much operating losses as they had last year. EBITDA was negative 9.1 million net loss around negative, well, net income was negative,

so it was a net loss of 39 million. They did have 44 million in free cash flow. That discrepancy between gap and cash flow measures is in part due to the stock-based compensation, which Brett mentioned. SG&A expenses accounted for 74% of revenue, and that's sales, general, and administrative. So they have sales and marketing spend makes up a lot of revenue. And then they also have 24-7 customer support. They have integration teams. It's a cost-intensive sales process. So they have to spend a lot of money in that regard. They have a dollar-based net revenue retention rate of 108%. Pretty solid for their business. Yeah, that's all I had for earnings. Ian, what do you have for balance sheet? Yep. So they've got about $626 million in cash and

marketable securities. And they as you just mentioned, they're generating a little bit of free cash flow. And so that's should be plenty of cash, they're not really going to be funding major losses or anything like that in the foreseeable future. They've got $185 million in Goodwill, that's likely to go up a little bit. They just made $150 million cash acquisition. So the cash will go down, Goodwill will go up a little bit. But that's less than 20% of their assets. So I'm not particularly concerned with that. If it grew to like 40% or higher, might be worried about some sort of write down that could negatively impact future earnings. But it's not a big concern right now where it is they're going to be, I expect they're going to

continue to be a little bit of acquisitive so the goodwill number is definitely something to watch um they also have about 395 million dollars in convertible notes um super low interest rate so they don't really cost anything but um it's likely that that'll further dilute shareholders over the next i think they expire in 2024 so sometime in the next two to three years those will those will be hitting um and should cause some some more dilution do you know what the strike was on those convertible notes yeah i was gonna ask the same thing yes the strike was i just looked this up i think it was about um somewhere around 67 or 75 dollars somewhere in there which is less than they're currently trading for yeah so it's a good bet that it's not going to be they're not going to

have to pay it back it's just going to turn into stock um which will dilute the shareholders but it's not going to hurt their balance sheet as much right yeah all right well that's going to do we're going to hit the ad break and then back for the second half of the show you All right. welcome back second half of the show here. And we're going to talk first about the competitive advantages that Blackline has. Ian, you want to go first? Do you have any? Yeah, I'll start it off. I'd say their big competitive advantage is trust, which you could also say is a little bit of a

first mover advantage. You know, it's hard to be trusted with financial processes of a company, they really don't want to screw that up. And they have to, they have to trust you a lot. And they've been able to build these relationships with Fortune 500 companies that really provides a moat that's going to make it hard for startups to infiltrate. So they've established those relationships. They've also established a relationship with SAP, who's a certified reseller of their software. And so that has given them even more credibility in this space to say, yeah, we've gotten the stamp of approval from SAP. We work well with them, all that type of stuff. So trust is definitely a competitive advantage for Blackline.

Yeah, it is nice to have that SAP partnership because I know they're big at selling software. I really don't know exactly what SAP does, but I know that everyone has partnerships with them and that helps, you know, get to more CFO suites and just accounting departments overall. Yeah. What do you have for competitive? Well, easy one is cloud based, just because a lot of the other ones are not, and they're going to have to catch up eventually. But cloud based just gives you that advantage overall, like because with especially with this remote work, you're able to do or not check everything from anywhere. And it's just better for the remote work environment we're in right now. They were again, ready for remote work. It's kind of like, all right, if you use Blackline, and you had to transition to remote work, it was way easier than if you you had, say, Oracle's product. And then I also think with a lot of the old people in the space or the old customers, excuse me, there's an innovator's dilemma. So Intuit with QuickBooks, they're probably getting a lot of cash from that right now, but they don't want to switch anything up and try to, what do they call it, cannibalize yourself. And Blackline may have that advantage

where, again, everyone mentions Netflix, but it's that exact same deal where they're kind of trying to move the market somewhere else. And if they're successful, a lot of the competitors are going to to be a few years behind. Yeah, I agree with all that. And it seems like every company throughout the last year was either negatively or positively impacted in some regard by coronavirus. It feels like Blackline was basically unaffected. Like maybe we'll see more customers come over because they'll start to see the need for a cloud-based solution, but no one's like, all right, we have so much more accounting to do and it's not like they had a huge i mean it didn't seem like in the numbers they had a huge adoption they didn't get a bump yeah right but um yeah my competitive

advantage is that it's just like state the nature of back office processes is very sticky you know because once you you really want to get the system in place and i mean anytime you're in the in sort of the nitty gritty of any office space, you're trying to hammer home a bunch of different systems. And especially when it comes to accounting, you want it to be uniform and kind of the same process over and over where that's really hard to just uproot and switch. So that does make the sales process a little more difficult, but once you have Blackline, there's like no reason to switch. And I believe they have a 97% renewal rate. So the turn is minimal. People stay because it's a pain in the ass to switch yeah and yeah people might argue hey they're

spending a lot on marketing but you have to counter that with thinking okay these customers lifetime values are going to be a lot higher so i think it might even out yeah yeah or yeah no i think that's 100 right it's there's two types of people who look at black line after they get it there's the people who get it and go wow this is such a lifesaver and this saves me so much time and i love it and then there's also the people who look at it and say oh this works right that tends to be the two camps. And so either way, it sticks around in the company. Right, right. Okay, next up is future growth opportunities. Ryan, you want to kick things off? Sure. I would like them to appeal to more startups. Right now, I believe 50% of the Fortune

500 companies use them. So they are really for big companies. And when you look at their competitors, like you said, it's mostly Oracle and whatever the other one was. Trend tech. But when it comes to startups, you've got like your QuickBooks solution, right? I mean, big companies were small at one point. And so it's less cost intensive to go sell to a startup where they are looking for your solution. They need some sort of accounting software

as opposed to going to a big company and saying, hey, this is going to take four and a half months, but let's switch the entire process. I think they can enter that market. I'd like to see them have some sort of QuickBooks competitor. I know it's going to be costly. Maybe they should do it once they're a little more profitable. but it's a good way to get a lot of companies that grow into the Fortune 500 companies

at the ground level. No, that definitely makes sense. I mean, stardom like younger, it's kind of what do you expect there, right? Ian, what do you have for future growth opportunities? Yeah, so I'm looking at acquisitions into adjacent industries. They just made an acquisition earlier this month, that $150 million one that I mentioned earlier, that's for account receivables automation. And I think that this is going to be a big part of their future. So whether it's acquiring additional complimentary products, or developing more products, they need to make sure that they maintain this growth rate for a long time because to kind of grow into this valuation, because they're not, they don't have the high growth rates of some of these other high tech

firms we see in the market today. But they have a very steady growth rate. And I think they have a proven ROI generating product. And it's just about how many more of those products can you add now that you have the trust of the CFO office, whether it's through acquisitions or through R&D, they have to continue to build more of these products that generate ROI. Right. And the thing, what's nice about this type of company is they can do a lot of cross-selling. So they acquire Remilia, which is that AR one you were talking about, and they have other clients and maybe they have a 20% crossover rate, you can try to cross sell Blackline 80% of those clients.

Like, hey, you use this product, we're gonna merge these together. Yeah, and just to add on top of that, I think that would be a really exciting development for Blackline is if they could grow their, you're talking about the revenue retention rate. If they can grow that dollar-based revenue retention rate up to like 115% from 108% now,

that would be huge for the company. And I think adding some of these complimentary products could really go a long ways towards doing that. Right, right. Yeah, because there's not an infinite amount of enterprise customers. So you gotta have that retention rate if you're gonna wanna grow,

especially at the valuation they're currently trading at. All right, I'll hit my future growth opportunities. They are really good at publicly displaying how their products work. They brag about the ROI that companies generate with Blackline. So for example, this is probably on the high end since they're gonna choose who did the best.

A Red Wing shoe company saved $1.2 million and generated a 379% ROI using Blackline. That just sounds great to save all that much money by using one company. I mean, I'm just thinking any business would love that. And then the payback on the deal they made was only 4.8 months, which just sounds like something that companies want to use

and that the value proposition is there for Blackline. It also shows that maybe they have some pricing power because if they're providing all that value that maybe they can, I don't know, raise prices by 20, 30% and have little churn. Which is a big way to generate higher dollar-based net revenue retention rate is a sense of pricing power. What do you have for highlights and lowlights? Highlights? Okay. Industry tailwinds are strong, at least in their niche of that industry. I mean, accounting has been around

forever. It's not going away, but within the software and the automation stuff, that's growing rather quickly. And they have been the leader in innovation in accounting software. That 97% renewal rate was also a strong highlight for me, which means they only have 3% churn, which is fantastic. Any company above 95%, well, consumer is a little tougher to keep the churn, but especially in like a software company like this, I mean, 97% is just fantastic. Low lights for me though, really the only ones I found for the business, all the operating cashflow is coming from stock-based compensation expense. So over time, hopefully that actually, because I usually like to add that back. But I also want to talk about how COVID didn't really help them, or maybe

it's going to be a slower process. We've only seen two or maybe one and a half quarters. But I mean, you would have think they would get a bump. And we'll see what happens. But it's kind of a low light for me. It's I mean, sure, the people that were stuck with the manual process of accounting, whatever that is, whether it's Excel, or people are like actually writing down on paper, they're not going to be able to quickly shift to Blackline in a matter of like a month. I imagine it takes a long time to get an entire corporation to switch. So I think that the customer transition to Blackline is going to be gradual. I don't think you'll see any massive shift in any of the numbers really, unless they have some big expense that shareholders aren't

prepared for. Highlights for me though, is that it's a very stable and predictable business. You can predict revenue essentially probably within $10 million as a shareholder, you can guess because they have 97% renewal rate and you know how many customers they add usually every quarter and you have 108% net revenue retention rate. I mean, it's pretty simple to see, all right, this revenue is very stable. We know how much we're going to bring in. Now it's a matter of managing costs and maybe acquiring some other companies. I think that's why they have such an acquisitive nature and why they've gone out and made acquisitions. Lowlights for me though, at the end of the day, it's really a sales business. And so a lot of people look at it

as enterprise software. It's going to have great margins and it's going to end up like a Zoom or something like that. But it's not, all your sales are outbound. You're going out and getting those sales, which makes it more costly as opposed to Zoom, where a lot of those sales are because people are craving your product and going out and looking for it. You sort of have to generate your own product market fit. If you're blacklined, that might erode over time and the cost to get those sales might be a little cheaper. But for the time being, the sales scale with the business. Yeah, the concern might be that operating margin, they may have an issue getting any leverage there. A lot of those operational expenses are, I mean, I don't know if I'm using this word right, but it feels like a carrying cost.

So as you're getting bigger, as you're getting more sales, you have to have the support for those customers. And that's expensive as well. Yeah, that's exactly right. All right, Ian. Yeah, so a couple of the highlights, like we've been talking about, it just works. It has a good rating on G2, which is a software review site. You know, like I said earlier, some people love it. Others just see it as the status quo, the standard. Either way, people expect Blackline to be part of their accounting software solutions.

I think there's a lot of potential with this continuous accounting idea, which we haven't really talked a whole lot about today, but just it helps management. If you have continuous accounting and you're not just getting monthly reports, you can actually see day by day how the books are being affected and what your cash position is and and how sales are going and all those types of things that can make more dynamic decisions. They also and I'll touch on this because we were talking about COVID a little bit. They've put out a lot of guides for users. Their most notable one is called the modern accounting playbook to try and help people kind of get through this time of you know transitioning to

some more modern accounting practices during the code environment and there's a weird dynamic going on in one sense this has become a situation where like black line is more valuable than ever because people aren't in the office it's harder to do all these manual processes but at the same time it's harder than ever to actually implement black line because you're not in the you're not in the office and it's hard to just get a whole corporation switched over like you're mentioning Ryan and so you know it's just this hard dilemma for people to decide is yes it's going to be super valuable but it's also a super hard project and it's not like at the top like especially when COVID first started corporations had so many worries it wasn't at the top top of the list

I'm kind of interested in these results that are coming out later today whether we'll see that it did pick up a little bit in the third quarter whether once people kind of settled in a little bit, said, yes, we're going to be working from home, but it's not just a emergency every single day. If they said, you know, we do have the time and capacity to focus on this implementation. You know, it'll be interesting to see. I don't know what it'll say, but I suspect maybe growth might, they may have added a few more customers than they did in Q2, but we'll see. A couple of lowlights for me, or go ahead, Ryan. I was going to say, they sound very customer centric. And I'm curious if Therese Tucker taking more of an advisory role or no longer being hands

on or as hands on with the business is sort of almost a red flag or maybe a yellow flag, something that might be a concern of it's getting more sales based and less about the customer. Do you feel like that's happening at all, Ian? I don't think that's happening at all. I think it's a reasonable thing to be concerned about. The way I've seen it implemented so far is that they really are focusing on how do we turn this, you know, like you said, they're customer centric and how do we take that and get it to as many people as we can?

And so they did the modern accounting playbook. They've done a conference that was really successful. They've been doing a few new things to say, how do we take this culture of our company and really get it out to the world? And that's what Mark Huffman seems to be doing a good job of is taking that to as many people as they can, impacting, getting their voice out there,

especially in those mid-market companies. they're fairly well known in the fortune 500 but those mid-market that can then grow into the fortune 500 companies are where they're starting to focus more of their efforts because they've kind of lagged behind in that area to date right your uh low lights no you did oh is that it yeah here you got them right that's all your low lights correct i i hadn't actually hit my low lights yet but okay okay um yeah um i'll just touch on this quickly i think it's the 108 dbnr it would be nice if that was up to, you know, like I said, 110, 112, 115%. I'd love to see that grow a little bit over time as they hopefully add on some complimentary products. You know, I'm okay with

the lower revenue growth, but it'd be nice to see the dollar-based net retention to increase a little bit. And then one other thing just to note before we wrap up, this could be a potential acquisition target. There's a lot of people out there, especially with their relationship with SAP that think that SAP could acquire them. It's about a $5 billion market cap right now. So would totally be within range where SAP could make a move like that, which for some investors might be interesting.

For others, it caps the growth. And so it's something to keep in mind when you're looking at this company. Are you more or less interested today? Ian, you wanna go first or? Sure, I'd say I'm a little bit more interested and I'm just, especially, I wanna see how they, this was like a major test for them this COVID environment and I want to see if they were able

to pick up any additional customers and see some results from some of these increased go-to-market strategy implementation in the modern accounting playbook in this conference that I mentioned I want to see if how that's working out and if that's going to give us some directional information about you know how Mark Huffman's going to do with CEO right I mean I'd say I'm more interested I kind of have two competing thoughts in my head where on one hand, I'm like, all right, it's expensive. Even a sales of 16 is not a joke. You know, you're paying up for it.

But on the other hand, I think, all right, well, I do believe they can have sustained 20% growth for the next five years. But then I come back to, well, 20% growth isn't that high. So it's kind of like you got to balance those two out. You really got to think that they have that sustained revenue growth. But I think the business is solid. um love to see if they can get some higher cash flow margin numbers but yeah i mean i'm definitely more interested yeah i'd say i'm more interested as well it's a compelling business um and it it

makes sense they are i believe they're well known or well owned among hedge funds i've seen like a lot of hedge fund portfolios that have them in there um maybe they use them so if you're looking for confirmation bias there you go right which i guess helps i mean everyone likes to hear that um i don't know i mean they're the only real concern is yeah like you said 20 isn't that fast there are costs that people probably translate it to like a sas model and they say well you know some of these sas businesses today are trading at 30 times ev the sales so that's not that bad it's like oh it's just comparing this the margins might not be the same 16 is still high even if you're looking at it compared to some of the other sas names it's i mean yeah like ian said

paying attention to the net revenue retention rate is good i would like to see um that done organically through new product offerings and not just through price raises because that's usually a better way to go about it um all in all like the business though yeah it does feel like one of those business models whether black line will win at this um and they are the leader now so i don't think it will change but you know it feels like one of those things that will be inevitable all these accounting processes as much as possible being automated just to save costs and save accountants um from you know doing all that busy work so anyone that isn't using blackline what do they use like the fortune 500 companies that aren't with them uh i don't know and you know

they have definitely have software for it but yeah so there's i'll just touch on this briefly so there's typically um two um like you mentioned there's the trend tech and the oracle hyperion that you can also use that do some similar things. What Blackline does, just to kind of clarify for all the listeners, is it actually goes on top of your existing ERP provider, which will be something like SAP, Oracle, NetSuite, Workday, one of these things that has all your accounts in it. Blackline is like an additional module on top of that. And so many of these companies actually have, you know, they'll have SAP, but they don't have the Blackline plugin. And so then they're doing it they're doing the you know it seems like all of this should be integrated into one software but

it's not and so then they'll be looking through um their sap software and saying okay and calculating it on the side through paper and through excel um instead of just everything happening in software and being automated which is what blackline well that makes sense that they're an acquisition target then yeah yeah all right we're all good any more comments no good all right well we got to mention before we head out we'll try to do this at the beginning of the show but it's their second run we have that partnership we are doing with seven investing so if you're thinking of signing up uh you can use the coupon code ccm at checkout very easy to do that is ccm at checkout and you can get ten dollars off your first month they here's my here's my take

if you've ever thought about subscribing why not use ccm you get ten dollars off it's seven dollars you get to see all their ideas and by the way there are some great articles in there um i don't agree with all the takes but there are some great ones yeah yeah um so i i highly recommend it and yes it's beneficial to us as well so i'm kind of talking my own book but yeah yeah it's a win-win-win for everyone all right that's gonna do it for uh this show make sure as always give us suggestions on twitter at chit chat money or email us suggestions at chit chat money podcast at gmail.com remember we are not financial advisors anything we say on this show is not formal advice or recommendation. Thank you all for listening. We'll see you on our next episode.

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