With today being a relatively slow day for news, we wanted to highlight a fairly
recent IPO (October 2016) that has been quietly making new all-time highs in
recent weeks: BlackLine (BL). The company sells cloud-based software that helps
companies automate and control their financial close process. In simple terms,
BlackLine's goal is to transform and modernize accounting and finance
operations for mid- and large-size companies. Specifically, its platform
supports accounting processes such as the financial close, account
reconciliation, inter-company accounting, and controls assurance.
Traditional enterprise resource planning (ERP) systems are typically not effective for processes handled outside of a company's general ledger, such as balance sheet account reconciliation, inter-company transaction accounting, and the broader financial close process. Many companies also use multiple ERPs and other financial systems without incorporating a platform that is able to efficiently integrate them, leaving the company reliant on makeshift and error-prone methods to consolidate their financial information. BlackLine's platform is purchased, typically by a controller, director, or accountant, to help take disparate systems, including multiple ERPs, and transfer their processes into an efficient workflow tool.
BlackLine says its cloud platform essentially helps accountants close their books -- think of them as selling to the accounting department. The accountant is the laggard in the enterprise. The promise of the ERP is for the entire enterprise to be able to share information. Accountants, while they're involved in the ERP equation, don't get the tools they need to close their books from an ERP. While CRM, HRM, and others have helped to be the leader in using technology to refine business operations in other segments of a company, accountants often still rely on a trusted mission-critical process and procedure that uses lots of sources -- Excel, file folders, hard drives, teams of people with know-how -- to manage their monthly closing and their financial closing process. That's a trusted platform that they have built, and they really are the latent part of the enterprise. It's a transition for accountants and auditors to be able to move beyond Excel and to organize relevant financial information and the analytical processes attached to it into a tool that makes sense.
BlackLine's goal in digital disruption is to help accountants realize that there is a better way: there is a cloud, there is a system that can better manage the cumbersome tasks that have burdened workers in their segment of operations. BlackLine sees its market today as vastly under-penetrated. The majority of companies continue to rely heavily on using Excel to get their books closed. As such, BL thinks that not only is it still just beginning to penetrate its market, but it is even way behind what you might see in other companies where you talk to people at the front of the enterprise.
Investors were pleasantly surprised in early August when BlackLine reported a Q2 non-GAAP profit of $0.01/share when a loss had been expected. Revenue rose 32.1% year/year to $55.45 mln, above prior guidance of $53-54 mln. The Q3 guidance of non-GAAP EPS at breakeven and revenue at $57-58 mln were both in-line with market expectations.
Over the last several months, BL has been scaling up its sales team for the next phase of growth, beginning with its hire of Marc Huffman as COO. Mr. Huffman joined BlackLine from NetSuite, where he was responsible for sales and operations in EMEA. He has a deep level of experience scaling cloud accounting software sales organizations. It also recently made two new key senior sales hires.
Little news has come out for the company since its Q2 report in early August. The stock has been quietly moving upward to new post-IPO highs. Investors can expect the company’s Q3 report in early November and hope for another solid quarter. From a broader perspective, our sense is that investors are starting to understand the growth potential at BlackLine. The company is just starting to scratch the surface in this market. It's still the early days.
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