BlackLine Stock

Good day, and thank you for standing by. Welcome to the Q3 2026 BlackLine Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Matt Humphries, Senior Vice President, Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine; as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine's Chief Technology Officer, join us.

Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q4 and full year 2026 are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q.

We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted.

Unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or in our Form 8-K filed with the SEC today. Now I will turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt. Good afternoon, everyone. In the third quarter, we delivered strong profitability and cash flow, continued momentum in platform adoption and important progress on BlackLine 3.0. Revenue came in at the low end of our range, and we are adjusting our full year outlook to reflect the timing of customer decisions and our professional services expectations.

I will walk you through what is working, what we are building and why I am confident in where BlackLine is headed. Patrick will then take you through the quarter and our outlook in more detail. First, the numbers. Revenue grew 8.5% at the low end of our guidance range. Non-GAAP operating margin was 25.9%, up roughly 450 basis points from a year ago, and we generated $58 million of free cash flow, a 30% free cash flow margin.

Let me start with what is working. Customers continue to move to our platform at a strong pace. Platform ARR is now 23% of the eligible ARR, up from 17% last quarter, keeping us well on track for our full year target of 25%. Customers are also signing larger, longer contracts. RPO grew 14% to approximately $1.1 billion and current RPO grew 10%, both ahead of revenue growth and average contract duration reached a record high.

The number of customers with more than $1 million in ARR grew 18% to 98, and attrition has come down meaningfully this year as customers have moved to platform. At the upper end of the market where we lead, customers continue to choose BlackLine and commit more when they do. Average new customer deal size was up 37%, and we continue to win multiyear 7-figure relationships.

This quarter, the sovereign cloud agreement I described on our last call closed as did our agreements with 2 of the 6 largest U.S. banks. We signed the largest invoice-to-cash deal in our history with one of the world's top 3 logistic companies and added a leading U.S. academic health system.

Major enterprises continue to move to our platform, including one of the world's largest CRM companies and one of the world's largest oilfield service companies, and our enterprise renewal rate was healthy at above 95%. That pattern also answers a question we hear from investors. Is AI disintermediating BlackLine?

The answer is no. If customers were replacing us, it would show up first in our largest accounts as churn, smaller contracts and/or shorter commitments. We are seeing the opposite, larger deals, longer commitments and strong enterprise renewals. AI is also becoming part of everyday work across our base.

About 3,400 customers, roughly 90% of our active base have our embedded generative AI enabled and about 2,500, 2/3 of our active customers use it in the third quarter. Returning users grew 25% quarter-over-quarter and nearly 9 in 10 accounts using these capabilities have used them on a recurring basis. Verity Prepare, our Agentic accounts reconciliation offering has been generally available for less than 10 weeks.

1/4 of entitled customers have been using it and reviewers kept about 98% of AI suggested reconciliations without any changes. Where our growth has not yet kept pace is in turning that platform momentum into Agentic AI consumption, and we understand why. Part of it reflects the scale of what we are building.

We're in the middle of the most significant platform evolution in our company's history with BlackLine 3.0, which I will describe shortly. Many customers want to see our platform and our new finance control console in action and see it work in their own environment working for a few quarters before they adopt and expand. Interest is high and customer response to what we have previewed has been overwhelmingly positive. What we are seeing is timing, not hesitation about the platform. Customers are sequencing their decisions around the launch.

As BlackLine 3.0 reaches customers, we expect that interest to translate into adoption, though at a more measured pace than we originally anticipated. The other part is governance. Customers tell us consistently that their own governance frameworks and controls are not yet mature enough for them to rely on AI and accounting and finance, where accuracy is paramount.

Solving that problem is at the center of our Agentic financial operations platform. And as customers put that governance in place, we are confident BlackLine will lead as adoption builds. Our customers have increasingly understood our position that to achieve the value of AI's potential, we must be able to trust the outputs.

We also made important progress with SAP. We recently received approval to add platform pricing for our SolEx channel. Further, our Agentic AI products are being evaluated for SAP premium qualification, which we currently anticipate receiving shortly after year-end. We are also working closely with SAP to give our shared customers greater clarity on how our AI capabilities work together so they can move forward with confidence. SAP has been and continues to be a tremendous partner, and I believe the best days of this partnership are ahead of us.

In the middle market, a smaller percentage of our business, we are tailoring our packaging and pricing to the needs of these customers and giving our teams more flexibility in how they put offerings together so customers can start with what they need most and expand from there.

We continue to win customers that fit our ideal profile, and we expect these changes to improve our results over time. And we remain confident in our long-term investments in the Middle East and the public sector, where we continue to build meaningful pipeline. Patrick will cover the near-term timing of both.

Next, I want to talk about what we are doing to grow and protect our franchise. First, we are concentrating our resources where we lead. That means more capacity focused on enterprise and mega accounts, along with greater commercial flexibility in the middle market, as I just described.

Second, we are helping customers get more from what they already own. Many customers are not yet using everything they have bought from BlackLine. Our message is simple. The products you run today are proven and valuable, use more of them, and our AI makes them even more powerful.

Our customer success teams are fully engaged, and we are embedding our own professionals with customers to accelerate time to value. Much of this work is not billable, and we see it as one of the best investments we can make in long-term retention. Later this month, we will launch our value realization program to help customers adopt a steady stream of innovation we deliver.

And in the first quarter of 2027, we will introduce an AI curriculum for finance teams through BlackLine University. Third, we are running the business with discipline, and I want to thank my BlackLine colleagues for that. They have built a new BlackLine while continuing to move the existing business forward, and it shows in our results.

Even with a lower revenue outlook, we expect full year operating margin to expand by roughly 200 basis points and full year free cash flow to grow approximately 20%. And fourth, we are delivering a platform that addresses the governance question I described earlier. We call it BlackLine 3.0, our Agentic AI financial operations platform.

Finance teams will increasingly run on a hybrid workforce of people and AI agents. That workforce needs agents that can do real accounting work and a control layer that governs every one of them. BlackLine delivers both. Critically, that control layer operates independently of the agents themselves. It monitors their activity, guards against errors and drift, keeps a human in the loop on every judgment call and records every action in an audit trail, which is what management and auditors require.

The centerpiece is our Finance Controls Console, the governance plane for every agent in finance regardless of who built it. Finance control console reaches general availability in 2 weeks, and customers we talk to are excited about it for a specific reason. It gives them something tangible to adopt AI against. It addresses directly the governance questions CFOs, CTOs, risk managers, lawyers and chief accounting officers are working through.

Over time, BlackLine, our partners and our customers will build agents that monitor AI activity across the office of the CFO, including AI that runs outside BlackLine. One of our first headline use cases is the allowance for bad debt. A team of agents runs the entire process end-to-end, assessing credit risk, aging the receivables, calculating the reserve, booking the entry and reconciling the result.

People set the policies, oversee the work, step in on exceptions and certify the outcome with every action recorded in an immutable audit trail. That's the shift BlackLine 3.0 enables from people doing the work to people governing an agentic workforce. And once a customer automates one process, the same approach extends to the next with the product they already own becoming the foundation for that workforce.

To give an example of the magnitude of change happening inside BlackLine, we have created 15 million lines of new usable code year-to-date. This compares to the 20 million lines of code we created in our nearly first 25 years of existence and an extraordinary increase in productivity.

We have built our commercial model for this new world. That is why we moved from seats to platform subscriptions and why, as BlackLine 3.0 launches, we are layering on consumption sold in outcome-based units customers already understand like reconciliations prepared and journals created.

As adoption of Agentic AI grows like our generative AI has grown, our revenue is designed to accelerate with the work our agents deliver. And we continue to innovate. And Beyond the Black, we will unveil several new products, significant platform upgrades and many of the features our customers have asked for, along with how leading global firms are working with us through our design partner program to build on our platform rather than around it.

To close, I want to reinforce 3 things. First, our foundation is strong. Customers are moving to our platform, committing for longer and our largest customers continue to choose BlackLine. Second, we have built BlackLine 3.0 while running the current business, and we have done it with discipline on margins and cash.

Third, we are confident in what comes next. Customers like what they are seeing in BlackLine 3.0. And as they put governance in place and move from evaluation to adoption, I believe BlackLine will be in the strongest position in our history to lead Agentic financial operations. We will show you all this and much more Beyond the Black.

With that, let me turn it over to Patrick.

Thank you, Owen. Our third quarter results reflect strong profitability and cash generation with top line growth below our expectations. Going a bit deeper on the financials this quarter. Total revenue was $193.4 million, up 8.5% with subscription revenue growth of 9% and professional services revenue growth of 2%. I will come back to services in a moment as it is an important part of our outlook. ARR grew to $735 million, up 7%.

Calculated billings were $171 million, up 6% in the quarter, with trailing 12-month billings growth of approximately 8% RPO was approximately $1.1 billion, growing 14% and current RPO, the portion we expect to recognize over the next 12 months, grew 10%.

Both continue to grow ahead of revenue, driven by larger deal sizes and longer contract lengths. Platform ARR as a percentage of eligible ARR grew to 23%, up from 17% last quarter, keeping us on track for our full year target of 25%. In Mega enterprise, that figure is now 28%. SAP was 26% of revenue.

Turning to retention and renewal trends. Dollar-based net revenue retention was 103.5%, driven by platform migrations and cross-sell, offset by lower user adds. Our revenue renewal rate was 90.5% with an enterprise renewal rate over 95%. One settlement with a distressed customer in the quarter reduced the renewal rate by more than 1 point. Churn remains concentrated in lower mid-market accounts. We ended the quarter with 4,316 customers.

Now let me turn to profitability and cash flow. Non-GAAP gross margin was 79.7%, up from 79.4% a year ago, with non-GAAP subscription gross margin of 82%. Sequentially, gross margin reflects higher cloud hosting costs associated with infrastructure build-out for strategic markets like public sector, the Middle East and for our sovereign cloud environment.

Non-GAAP operating margin was 25.9%, up from 21.4% a year ago and above the top end of our guidance range, reflecting our continued focus on efficiency and productivity, including reallocating resources to our highest priority investments and increasing use of AI across our own operations.

Non-GAAP net income attributable to BlackLine was $44.7 million, with adjusted earnings per share of $0.64, up 25% from $0.51 a year ago. We delivered operating cash flow of $67 million and free cash flow of $58 million, bringing year-to-date free cash flow to $130 million. We continue to expect full year free cash flow growth of approximately 20% -- we ended the quarter with approximately $532 million in cash, cash equivalents and marketable securities versus $668 million in debt.

In September, we acquired NetNow for about $20 million. We repurchased approximately 1.3 million shares in the quarter for $39 million, bringing year-to-date repurchases to $124 million, nearly 100% of our free cash flow. For the full year, we expect to use approximately 100% of our free cash flow for share repurchases.

Before turning to guidance, let me walk through the factors that affected the quarter and our outlook. Deal timing. July and August were solid, but September was soft. Several 7-figure opportunities that had cleared customer approvals did not close as expected.

Earlier in the year, deals that slipped typically closed within a few weeks. Today, those time lines are extending further, in some cases, into the following quarter. Additionally, we are seeing customers prioritizing AI-related cybersecurity and infrastructure spending in the near term and a more cautious macro environment is adding scrutiny with more approvals and harder fault terms.

AI consumption. Consumption revenue from our Agentic AI products has been below our expectations, and user adds have declined as customers move to platform pricing, as Owen described earlier. SolEx. Some customers paused decisions as they sought greater clarity on how SAP's AI capabilities and our Verity agents work together, making this a challenging quarter for SolEx, particularly for expansion within existing SAP customers.

Strategic investments. In the Middle East, the conflict has significantly slowed progress in a region we expect it to ramp in 2026. We are maintaining our investments for now. In the public sector, our pipeline has grown significantly, but award timing has slipped, including awards we expected around the federal fiscal year-end on September 30.

Middle market, results have been inconsistent and the commercial changes Owen described earlier are underway. Professional services. Services growth slowed to 2% in the third quarter, and we expect growth of 3% to 4% in the fourth quarter. This reflects deliberate choices.

First, we are investing more of our services capacity in customer adoption and enablement, work that is not billable, but is helping drive the improvement in enterprise churn and attrition we have seen this year. Second, our focus on enterprise and mega customers is leading to larger, more complex implementations, where leading systems integrators often serve as the prime contractor and BlackLine participates as a subcontractor.

Partner-led projects made up nearly 30% of our services activity this quarter, up from 23% a year ago. That earns us less service revenue, but it reflects the strength of our partner ecosystem and the deals that matter most to us. Our revised full year revenue guide reflects these deal delays and lower services growth.

Nearly half of the reduction at the midpoint relates to professional services, where, as I noted, slower growth reflects investments in adoption and our shift toward larger partner-led enterprise implementations. Services also carry lower margins than subscription, so this shift has a limited impact on our profitability.

On subscription, we have built our outlook on what we experienced in September and applied it to the balance of the year. Specifically, we assume that deals will continue to take longer to close, that decisions will land later in the quarter, which limits their contribution to revenue this year and that a higher share of opportunities will slip than our historical track record would suggest.

That reflects both the current environment and our mix as more of our pipeline is made up of both larger, more complex enterprise and mega opportunities, which typically take longer to close. Our outlook assumes customers remain cautious through year-end, and it does not assume any recovery in close rates in the fourth quarter. We will provide our 2027 outlook on our February earnings call.

The long-term drivers of our business, platform conversion, Agentic adoption and new markets and products have not changed. However, we are being prudent in how we reflect their timing in our outlook until we see them in our results.

Now regarding guidance for the fourth quarter. We expect total GAAP revenue to be in the range of $195 million to $197 million, representing 6.5% to 7.6% growth. We expect non-GAAP operating margin to be in the range of 25.8% to 26.9%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $47 million to $48 million or $0.67 to $0.68 on a per share basis on approximately 72.4 million diluted weighted average shares.

And for the full year 2026, we now expect total GAAP revenue to be in the range of $759.5 million to $761.5 million, representing 8.4% to 8.7% growth. We also expect non-GAAP operating margin to be in the range of 24.2% to 24.5%. And we expect non-GAAP net income attributable to BlackLine to be $174 million to $175 million or $2.48 to $2.49 on a per share basis on approximately 72.9 million diluted weighted average shares. Operator, we're ready for questions.

[Operator Instructions] Your first question comes from Patrick Schulz from Baird.

Maybe just starting off and Patrick, I appreciate all the color you provided around some of the moving pieces with the guidance. When it comes to deal timing, I think last quarter, you guys called out some deal slippage, too, and July, August saw a little soft. Maybe can you talk about, I guess, the confidence level that these are just deal delays rather than lost demand in the pipeline?

Yes. Let me try to cover on that. It's good to hear your voice. So I'm going to walk you through just a couple of quick ones because -- so let me start. We have been working on the largest deal in our company's history and anything else that we've ever done, high 7 figures ACV for quite an extended period of time with a top 10 global revenue company. It's been a 2.5-year pursuit.

We've actually, in the process, had to deliver 10 proofs of concept. We've had to show multiple customer referrals -- we've probably gone through the most extensive cyber review we've ever gone through sort of monthly steering committee meetings going through an AI product road map and AI governance review, reliability review, scalability testing and partner reference checks.

They sent a dozen people to our industry roundtable just a short period of time ago. And now we're expecting final approval from their executive committee/board this year with a planned start date in January of next year. So a great deal, but just to put in perspective, and we're very confident in that one.

How much of a delay it is? We expected when we started this conversation with the customer to be going live this December. So it just gives you the idea of how much more review that's going through those. Second one, and Patrick hit on it just a little bit. So we've been involved with a multiyear pursuit with a federal agency that you have to have the highest level of security required.

Contract was expected to be done at 9/30, consistent with the government year-end. We met every hurdle that this agency requested of us, including how we could handle the complex volume of their information, particularly from a matching perspective. We are -- there are 3 finalists that have been selected to do the implementation. We are the technology provider for all 3 finalists.

So they've included us in each of the bids. So we're now expecting that what was going to be awarded at September 30 is now going to come December 31 with a kickoff in 2027. I'll just give you one quick one from this week. So after another almost 2-year bake-off, we got a call Monday morning, Fortune 250 company, about a $900,000 ACV telling us that we were the winner. And we asked if we could get the deal done by December 31, and they said, well, we'll try, but January 31 is more realistic.

And so again, we can see it. We're highly confident, particularly in the enterprise space that we're going to win these deals, but the delays are what have really not helped us so far. And I can go on with more of those examples. And that is what's caused the real challenge from a linearity perspective in our financial results.

Yes. I appreciate the color there. And maybe a quick follow-up too. Just -- I mean, solid progress on the platform pricing adoption. Can you just talk about maybe the like-for-like uplift you are seeing as customers move to that platform model and maybe where you think some more common pressure points...

Yes, Patrick, thanks for the question. We're really happy with how we're progressing with our platform conversions right now. We feel very confident in the 25% by the end of this year. There's probably a little upside there. We felt confident in that all year long. The conversion rate and the uplift remains in that range of about 10% to 40%. I know that's a wide range, but you can work towards the midpoint.

And that depends upon the type of customer that is converting, the attributes of that customer, how long they've been a customer. There are several, several different variables that go into that. But the main point is that we're being successful with those conversions, and that sets the foundation for Agentic monetization in the future. So that is a critical step and critical element, and we are right at, if not ahead of pace with what we thought we'd achieve in that area.

Your next question comes from Chris Quintero from Morgan Stanley.

Makes a lot of sense that it's taken a while for your customers to adopt AI and get the right governance in given these are finance folks that are more risk averse, right? So I think it makes a ton of sense.

But I think investors are frustrated by the guidance reduction here. So as you look out to the new guidance you've given, what can you say that can give investors confidence in the new numbers that you've put out there?

Yes. Chris, let me start with what we're seeing in here, right? So first 2 weeks of October, I went out and visited 12 of our largest customers on a global basis. So 6 in Europe, 6 in North America to talk with them about where they were because they're all sort of either have moved to platform or evaluating platform and really trying to understand what's holding them back from moving quicker from an AI perspective.

And the reality is it's all the headlines. It's all the things that they see and read every day of what's going wrong with AI versus what the art of the possible is. And so what that's doing for us is it's putting our customers in a spot where they really want to do much more testing around what we have to offer to prove it to themselves in their own sandbox. And I'll get Jeremy to add a little bit more here in just a second.

But they're just really being very cautious because they can't be wrong. They're excited about what we've done private previews on for Jeremy and I probably went out to 50 customers at the enterprise level, walking them through BlackLine 3.0. They love the trust infrastructure that they're going to be able to start using in a few weeks. But then it still then comes down to getting them comfortable with agentic AI. We're having no real challenges with them using our generative AI.

And so the issue then for us is how quickly can the consumption start just given the way we're seeing the ramp unfold at this particular point in time. And I think the general feeling that when you're talking to these customers, these larger customers, they're going to go at a steadier, slower pace than fast. And we see it in our own experiences so far. If you're private and smaller, you're not worried about if you might get a wrong answer from AI.

The first threshold that takes over is if you're public, you're really concerned about it. And then the bigger you are, the more caution that we're seeing. And Jeremy, you want to share what we've got from a Verity Prepare maybe so far?

Yes. In terms of our -- and maybe just to reinforce Owen's point, across AI adoption, we are seeing increased usage from users using AI. This is across all of our AI capabilities. So 25% more users are using AI quarter-over-quarter. Now the question is really around the agentic AI capabilities like we have with Verity Prepare. There, you see more caution as people need cycle time to evaluate how this is performing in production.

We now have 1/4 of our entitled customers evaluating this currently. And so you see adoption and usage continue to grow, but they need to bake time and they need to gain that confidence. a lot of our announcements that we have at our upcoming Beyond the Black conference will reinforce and emphasize our control layer and why that fundamentally is different and helps enable the adoption of AI further.

And just, Chris, to put it in context, I was with a Fortune 25 company, and we took them through the agentic financial operations platform, and they're a big user of BlackLine. So they were one of our better adopted customers. And the Chief Accounting Officer in that meeting said, can I have that today?

Like we need that because we can't move forward without as well adopted as they are. They were hesitant on moving forward with our AI until they could really have a trust infrastructure. So it just brings it home to life.

I think for us, the hard part is figuring out how to how to lay that out for how quickly it all begins to evolve. I think we'll probably feel a little bit like a J-curve as we go through getting customers used to it. We hear it from our customers. Can you show us others that are doing it as well? They want to talk to each other. And I think we'll start to see real progress with that in '27, but how fast is just a little bit harder to predict.

Your next question comes from Matt VanVliet from Cantor.

I guess maybe be curious on what you think the opportunity is at SolEx now that you've been approved for the platform pricing? Is there still a slow cadence of adoption there? Do you think it might speed up a little bit with the more reference customers you have? And then should we expect a similar uplift there? Or is there anything that might be an impediment to achieving at least the higher end of the uplift range that you gave us?

Yes. Patrick and I will tag team on this one. Good to hear your voice. Look, I think I said in my remarks, I mean, SAP is a phenomenal partner in so many ways, and I'm really proud that we have the relationship we do with them. I think what we saw in the last few months that has made things a little bit more complicated is that we haven't come out with a joint road map for Joule and Verity like we did on the golden architecture.

And so that has created a little bit of hesitancy from the buyer community and the buyer community that we serve jointly has been pretty vocal about the need for us to continue to accelerate, providing greater clarity to the market as we move forward, and we will do that. It's fantastic that we got the platform pricing approved. But what our customers want with that platform pricing is the Verity capabilities to go along with the platform itself.

So what I said, I think in my prepared remarks is we expect shortly after year-end, which in my mind is sort of the first couple of weeks of February to get that PQ to then be able to move forward with our products. I am very confident that it is going to give a nice tailwind to our business in 2027 because we know the conversations that we and SAP have been having with our joint customers over the last few months that will help.

Now I'll turn it over to Patrick to give a little bit more about how we might think about the math, but it should be a very good ability to help us move forward in 2027.

Yes. And Matt, the viewpoints, early socialization with or SAP about this, there's no reason that we can't achieve the same level of success through SolEx that we are directly with our customers. Value is value. The end customer, they see value and they're willing to pay for it. So we feel very good that the uplift that I spoke to in the previous question will also be realized with our SolEx customer base.

All right. Helpful. And then, Patrick, on the NetNow deal here, what's the expected contribution in the fourth quarter? Is that all pure subscription to account for? And is there any seasonality in that business? Or should we think about it as pretty pure SaaS revenue?

Yes. I guess the short answer is it was a $20 million acquisition. It was a tech purchase to round out our invoice to cash offering in the marketplace. And that was largely the basis and foundation for that purchase, no different than WiseLayer about a year ago.

The contribution of revenue in the quarter and for the year is de minimis. It's fairly insignificant. This is something that we bought. It was more efficient to do that than to build it, and it rounds out our entire IDC offering.

Your next question comes from Steve Enders from Citi.

I guess just to start, I mean, I think there were a lot of factors that have been called out as kind of headwinds here. And I guess I want to get a little bit better sense for maybe where areas you maybe have confidence that it might start to improve sooner rather than later?

Or it sounds like some of them, you feel like there might be a bit of a time line when that starts to get kind of cleared up like the SAP relationship. But yes, I would just kind of be able to get like a good sense for maybe kind of what the time line looks like here for when some of these things might improve in the future.

Yes. I think just trying to go through that. So I think starting with the SAP example, sort of middle of the first quarter '27. I think when we have the ability to sell our AI with the platform with our SAP colleagues, that should be positive. Generally, that they had their big quarters in the second and fourth quarter, so it's probably aligned to that.

I do think the stuff that we're seeing in the federal government space, probably the end of the year for at least one big one and then another big one in the first quarter of 2027, the way things seem to be shaping up.

I'm very bullish about our ability to continue to win in the enterprise space and the mega enterprise space. I really think we've done a great job of putting distance between ourselves and everyone else and the capabilities that we'll be unveiling in a couple of weeks. I think for those of you who have the chance to come down and see it, I think you're going to be very impressed with what we're doing. I think the mid-market, we've learned some good lessons this year.

Competing, particularly as there's a number of new native start-ups that are out there and what we can do to differentiate ourselves both from a depth and a breadth perspective, but also security and other things that do matter. And I think explaining that and telling that to the market should work out well.

And I think the one thing that's a little bit just harder to predict, which we touched on is just how quickly consumption revenue kicks in as our customers begin to adopt our AI. So right now, I think Patrick and I are really thinking that becomes more the middle of next year, end of next year versus the first half of the year. That's what we're seeing in our thinking right now.

Patrick, do you want to add to that? I want to see if Patrick wants to add anything.

No, I think that's well articulated in terms of as we think through the future, we have a very good line of sight on the large deals that Owen articulated earlier in this call. We know exactly how those deals are going, where the buyer is in the process. So we have a very strong line of sight on some of those very large deals that really can change a quarter. I would agree that probably the one thing that we're working through is when will Agentic monetization become notable for the company.

And to speak with that absolute candor, the reason we're still working through that is our customers are still working through that. They're still testing the technology. They're getting comfortable with it. They're getting approval from their auditors. They're getting approval from their legal teams. And so as we work through that, that's probably the last leg of major monetization of all the things that we talked about on this call. And that's what we're still thinking through and working through with our entire customer base that's on platform right now.

Okay. That's helpful, and I appreciate the thoughts here. Maybe following up on, I guess, some of the AI points that you're making in terms of the delays. I think you did call out there was some -- I don't know if it's just budget prioritization dynamics playing going on with people assessing what they're doing from an AI perspective or dealing with their security kind of capabilities.

Just how much is that about kind of the budget just being pushed elsewhere as people are dealing with token spend and dealing with budget overages versus I guess, kind of the bigger AI pause that's kind of going on as people just try to figure out what they're doing from a financial perspective and working through those dynamics.

Yes. So -- and Jeremy and I'll tag team on this one just a little bit. So when both Jeremy and I are out and Patrick's out and some of our other executives out, we've been asking pretty candidly like where are your budgetary priorities. And clearly, number one, and obviously, we see it elsewhere just in financial results is in cyber defense. Like companies are just really very anxious.

And so that's where they're spending more money upfront hardware is sort of the second thing that we see. And then as we go through and talk about our own capabilities, we get way more questions today than ever about our cyber capabilities, how we govern and deploy AI, and there's some announcements we'll make in a couple of weeks about some of those things.

So when we're able to demonstrate that strength of we're not going to create any more risk for our customers, it does help. But again, sort of just from a priority perspective, it just sort of becomes part of the topic. But Jeremy, you're out there, too. We've seen other customers when I'm out with you.

Yes. I would say that governance is one of the critical questions that comes up with customers. And we are a trusted brand with these customers. But even for us, as they move to platform pricing to be able to adopt our capabilities, they want new teams, GRC, AI compliance to go through and reaudit our capabilities.

So there is a reexamination, which is why we've begun to see an uptick in our entity capabilities following the release, but it takes time to go through those GRC teams, the audit and the other regulatory pieces that they are wanting to scrutinize. We will share more about how we're going to simplify that process at our Beyond the Black conference, but there's a lot being done there to simplify how we get through the regulatory process that our customers want to govern because AI is so critical and they are understanding of the risks, especially in these large enterprises, but they do see the value in deploying it.

On the comment made about token spend, I think one of the advantages we have very specifically is that we provide clear certainty around what our AI solutions can deliver for the spend that they have. That's some of the advantage of platform pricing. We are not being charged tokens when you use BlackLine AI capabilities. We bundle that together, as mentioned before, it's easier to understand constructs for a CFO or related buyer, and that is an advantage they see from our perspective.

Your next question comes from Alex Sklar from Raymond James.

This is John on for Alex. You mentioned working with SAP on how your respective AI capabilities can operate together. I'm just curious how those conversations are evolving and maybe what you've learned about where your capabilities can sort of complement theirs as we move forward.

Yes. So Jeremy and I will cover this together. I think the simplest way is there's sort of top-to-top conversations sort of instructing teams to go figure this out. That's my role in that. And then Jeremy, you and our product teams and SAP's product teams are in the trenches figuring out. So you want to pick it up from there?

Yes. In terms of how we are developing with SAP, as a SolEx partner, we are an extension of their solution. So we have a golden architecture that really lays out the fundamentals of how we interoperate as a complete product suite. SAP doesn't distinguish us from a core part of their solution when it comes to the entirety of the record to report solutions.

And that's no different for AI. What is coming, though, is working out the mechanics of how we integrate our AI systems together from a metering and billing standpoint, from a technology standpoint, again, from a governance standpoint as well, all those components are being built out currently as we march towards releasing those next year together.

It's a lot of work, and I'm really proud of the way both the SAP and BlackLine professionals work through that.

Okay. Helpful color there. And then I realize we have the guide for this year. But just given the more challenging growth environment here and the elongated sales cycle, how are you thinking about balancing operating margin and continued investment in the platform strategy from here as we move forward?

Look, and Patrick and I will tag team on this one as well. We do a lot of tag teaming around here. Look, I think what we're trying to make sure is that we invest appropriately, allocate our resources to the things that are going to drive the business forward and that we continue to get smarter and more efficient and effective as an organization. And so we're sitting here basically with less than 1% growth in our headcount year-to-date and with the revenue growth the way that we've been able to demonstrate so far.

And a lot of that has been driven by our ability to use technology better, use the AI and the technology and then also continue to deploy resources differently around the world. I mean I'm stunned and amazed by what Jeremy has been able to do from a productivity perspective, for example, in the product and engineering team.

So we're continuing to really focus on improving margin, but not at the expense of starving the business. That's not what we're looking to do, but that doesn't mean we can't continue to get in better and better fighting shape each and every quarter as we move forward. Patrick, anything to add?

Yes. No, Owen, I think you said it best. I feel -- we feel very confident in our ability to continue to deliver expanding margins into the foreseeable future. We feel very confident in our ability to grow cash flows into the future. And we do that by knowing where our investments are working and to, I guess, allocate capital in a way that drives growth in a prudent and efficient fashion.

And everything that we're talking about today and that we talked about during this call, we know is working. It's just a timing matter. We know where customers are seeing interest. We know what deals are close to closing. We know where there's excitement in the marketplace. We know that this is working. It's just a matter of time, and we'll continue to evaluate that investment strategy as we see it in our results.

Your next question comes from Daniel Jester from BMO Capital Markets.

This is Kyle Aberasturi on for Dan Jester. Could you just double-click on NRR in the quarter? I guess how much of that was impacted by large deal delays? And I guess, what do you think the team needs to do to focus on driving NRR higher in the near term?

Yes. Well, NRR, its impact in the quarter was more a story around account growth of our existing base and driving even more consumption into that base, which we have not seen. But the large deals that Owen has talked about that we're still working through are net new logos. So they would not have an impact on NRR in the quarter. We did have a very positive quarter from a churn and attrition standpoint, and we continue to improve there.

But largely, what it would take to get back to the 109, 110 that is in our model, we feel very confident that we're going to get there is continued expansion into the base, not just through the platform, but through consumption revenue while still controlling and reducing churn and attrition into the future. That is our path that we're working through right now.

Okay. Great. That makes a ton of sense. And then just a quick follow-up. I guess, -- as you guys think about the remainder of the year, I guess, do you still think you can achieve double-digit ARR growth exiting the year?

We'll evaluate that as we get to the end of the year, and that would obviously have an influence on 2027 guide. But there are some headwinds in that regard, and we'll continue to work through that.

Your next question comes from Billy Fitzsimmons from Piper Sandler.

I appreciate the follow-up cover already given on the deals slipping in September and taking longer to close. Two quick follow-ups. Of the deals that have slipped, were these concentrated in particular end customer verticals or geographies? And then the second part is when you constructed the 4Q guide, what assumptions were made on close rates versus prior guidance this year?

Yes. So Patrick, again, I'll break this up a little bit. So no real concentration by geography. I will say European customers are increasingly focused in our conversations with us around data sovereignty -- the decoupling of that part of the world to be dependent on any other part of the world in some ways is having an impact on some of the conversations. And you might have seen one of the announcements we just made in a partnership with Thales for Continental Europe.

So that is certainly something we've been working our way through. But beyond that, I wouldn't say there was really anything too dramatic around geographic shift. But Patrick, do you want to go through the rest of it?

Yes. In terms of why we feel so confident in our 4Q guide and some of the assumptions that we put behind it, in no particular order, one, it was called out in the prepared remarks, we're assuming about a 3% to 4% increase in professional services revenue year-over-year. That's obviously lower than normal, but that was built into the guide to account for the good things that's driving that, which is the investments we're making into our customer base to drive down churn and attrition and increase adoption.

And it's also reflective of the fact that we are landing larger 7-figure deals in the enterprise and mega enterprise space that require partner involvement or partner-led implementations, which is less service revenue to us. So that is one key element to how we build out the fourth quarter guide, a little bit different than the previous quarters. In terms of deal duration or time to close deals, -- if you remember, we had slipped deals in the first quarter.

Many of those deals closed in the second quarter. And then in the second quarter, we also had slipped deals, but we increased the rate of closure. It moved in a positive direction. In the third quarter, it looked a little bit more like the first one, and that's the assumption that we use. So we put into place a slightly longer time to close, more reflective of the first and third quarter activity or actual results, and that was built into the guide and why we feel very confident and why it's a prudent guide.

And then just as a quick follow-up, some of those deals that slipped in 2Q, can you just describe, I think it was $8 million. Did those end up closing in the third quarter?

Yes. I mean -- so going back to what we talked about, that was a large reason for a very strong July that we had here and a strong August. But unfortunately, September did not pan out that way.

Your next question comes from Tomer Zilberman from Bank of America.

Maybe I wanted to shift to the recent acquisition that you guys disclosed of NetNow. First, at a high level, I wanted to ask you what it gives you. I think it's some AI capabilities. And then further, like as you think about M&A going forward or build versus buy, what are other areas of your portfolio that you think you can further AIF, if I can call it that?

Yes. Jeremy, why don't I start and then if you don't mind picking up. I think, look, -- what NetNow does for us was it helps us complete our invoice to cash cycle. And when customers were sort of just looking like for cash application, we were doing pretty well. But when they were looking for a more holistic solution, our win rate wasn't as high. There's a couple of things we had on our road map that we have been building, and we'll be sharing those in 10 days or so.

But there was a piece around what NetNow brought to bear that we would like to have built, but that was probably more for '27. We saw what we thought was a great asset with a really strong team and decided that it was smart for us to bring them in.

And so far, it's only a few weeks at this particular point in time. but the difference they're helping us make in the marketplace around our positioning has been very nice in the fourth quarter so far. But why don't you talk a little bit more about not only that and then also sort of how we're thinking about acquisitions.

Yes. NetNow does a great job of really helping complete our invoice-to-cash suite. So when you think about that life cycle, when you decide to enter into a trade relationship with a customer, you need to do things like check bank references, trade references, do fraud screening, check physical addresses and things like that.

This takes that whole process and automates it end-to-end. And so it's really complementary to what you're going to continue to see from us from a credit and risk standpoint across our invoice-to-cash product suite. So it's a fantastic tuck-in acquisition from that.

And I think just for other things we're looking at, it's really sort of upstream sort of on our core wheelhouse, right? So what else can we be doing within the financial close and consolidation space or in the invoice to cash where it can accelerate the time to value might fill in some of the continuing niche things that our customers are asking us for and just be smart about how we spend capital.

I think one of the things I feel good about with the team that I have around me is they don't get deal fever and we walk away from way more deals than you can possibly imagine because they're just not going to deliver the kind of value that we would like.

Got it. Maybe as a follow-up then on platform pricing. Good to see that you reached 23% this quarter, a quarter ahead of your year-end 25% goal, and that's excluding SolEx. And if I understood you earlier, you actually said you received approval to add platform pricing to the SolEx channel.

How does that change how you're thinking about the 25% year-end goal? And if I recall, you had an 80% to 90% target over the next few years. Does that help expedite that?

I guess just for a point of clarification, when we speak to the 23% of eligible ARR, that excludes SolEx. So that would be something that we would add into the numerator and denominator of that calculation. Overall, though, this is a net tailwind for us. We still feel very confident that as we work through this cycle with SolEx and non-SolEx that we will achieve 80% on the platform over the next several years.

We feel very confident for the eligible ARR exclusive of SolEx because it's not officially there yet or approved yet, that we'll get to 25-plus percent by the end of this year and at least 40% plus by the end of next year. And then SolEx is a tailwind on top of that. So that's how you should be thinking through that just from a modeling perspective.

Your next question comes from the line of Jacob Zerbib from William Blair.

Just a quick question for me. Last quarter, you discussed platform pricing and Agentic AI contributing at least 2 points of incremental growth in 2027. I guess given your commentary today about customers taking a few quarters to kind of evaluate BlackLine 3.0 before expanding adoption, has your expectation for that contribution changed? Is that still achievable? Any color on that would be helpful.

Yes. I mean it's something that we continue to evaluate. As we look at more and more proof points for the remainder of this year and early next year before we come out with the guide, we feel very confident in the incremental ARR/ACV that we generate through platinum uplifts that we'll get throughout next year, coupled with the SolEx contribution that will now be in play.

From an agentic contribution standpoint, we're getting more and more proof points every day. Working with Jeremy's team and the customers that we currently have on platform, we're evaluating that and modeling that out. But right now, we still are evaluating can we get to that 2%, but the platform uplift alone will get us very close to that number.

This concludes today's question-and-answer session. I'll now hand the call back to Owen Ryan for closing remarks.

Thank you, everybody, for listening and participating in the call tonight and look forward to catching up with many of you in the call backs. Have a good night, everybody. Take care. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.

All right. Awesome. Well, thanks, everybody. Thanks, everyone, for joining us today for the afternoon of day 2 of Citi's Global TMT Conference. I'm Steve Enders, part of the software research team here at Citi. And here for this session, very glad to have the team from BlackLine here. So I want to thank you both for joining us today.

Thank you.

Thank you.

Maybe just to start, I think there's been a lot of changes with BlackLine over the past couple of years. Maybe we can just start with kind of what the core story is today and how you're kind of viewing the opportunity to invest in BlackLine over the next 3 to 5 years.

Yes. So thanks, Steve. So we have been on a rapid journey to transform the business 3 years ago, roughly when I stepped into the role, we did a complete refresh of our strategy, where we wanted to go, focus on certain parts of the market to really be more selective about the customers we chose to do business with, the industries, the geographies, the ERP partners, the system integrators. And so we did a lot of what I would call choices in and choices out.

That served us pretty well as we move through the last couple of years. We really got our innovation back in motion when we brought our founder back into the business who drove a lot of that, including stuff around Studio360 and then expanding the platform to be even more complete around financial close. I think we were smart that we had some insight as to the possibilities of AI and what that could bring for us.

And so in some ways, we were ahead of the curve. In other ways, the markets moved so quick. We're still trying to make sure that we're a relevant player in that. And importantly, one of the big things that we'll be sharing at our BeyondTheBlack conference in November, and we sort of hinted at it already a little bit is our financial control console, which will really provide sort of complete governance around AI in the office of the CFO, which is something that our customers and our partners and the BPO partners have been talking to us about like how can we help to orchestrate and manage all that workflow, not only for what BlackLine builds, but for what maybe some of our partners and our customers also build.

So that's some big things that are coming. We've got a lot to share, but we feel pretty good about the position that we have in the marketplace.

Okay. That's great to hear and definitely excited to see what comes out of that in November, I believe. So yes, definitely looking forward to that. Maybe we can dig a little bit into just the demand environment today. I think you called out some deal delays in the past quarter. I think there's more friction just tied to evaluating AI. Can you just maybe give us a better sense of the dynamics that are at play here? How are you expecting or baking in the deal cycles into the guide for the rest of the year? And then I guess, as we think about the other side of that, what do you kind of feel like are the levers that are in your control to try to improve deal cycles moving forward?

So there's a lot to unpack there. So first of all, our pipeline has never been more robust. And so -- and our pipeline is more robust at the upper end of the market. So like enterprise, enterprise, upper end of the mid-market, which are the places that we're really trying to drive our success. So we feel good about the situation with opportunities. Our deal cycle has always been relatively long, 12 months is not uncommon for what we do. It has elongated in the first 7-plus months of the year.

Part of that was driven first by build versus buy, right? All of a sudden, everybody had bought a lot of tokens last year at the end of the year, and they were trying to figure out, can I just buy code my financial close, preparation my financial statement. And so there was a lot of what do we do around that. And so for us, we spent more time with CIOs and CFOs, controllers and their teams talking about the pros and cons of trying to build versus buy.

You've now seen a lot more in the marketplace around when you should build versus when you should buy, which stacks up well for us because you shouldn't really be trying to build financial close and consolidation capability. So that certainly was a big piece. And then the other thing that's really happened is companies are afraid of AI at a certain level. They want to embrace it, but they're also a bit unsure of how to unleash it in their organization.

And so CIOs certainly played a bigger role. Chief Legal Officer is much more involved in conversations beyond the normal sort of agreements that we get into. We've run into a number of bigger companies now have AIs, who are trying to figure out what that role is. We've been asked to provide much more clarity around our own AI governance, how we build things and making sure that we're not going to build something that gets unleashed in our customer systems and goes crazy.

And so all that has added to the complexity of getting deals done. So then what do we do to try to respond to that, right? So like in the first quarter, we were sort of, okay, what does this all mean? We did a lot of work educating our people on build versus buy. The second quarter, which is really now into the third quarter, much more work around talking to our customers early on, like, "Hey, here's what we're seeing." Here's the question you should be asking because we have the answers for it, right?

So don't wait for them to try to figure it out, be very proactive early on in talking about AI governance. So we now have much more standard answers that we go into proactively. We're trying to engage some of the people who come later in the deal cycle earlier because, again, the deal cycle, if we're going to shorten it, then we're going to go down -- we have to go down multiple parallel paths. We can't just sort of the linear typical procurement, you do this, check the box, you get to the next milestone, check the box.

And so there's a lot of work that we've done to try to change that. Now that said, some of these big companies, they're not going to change their procurement processes just to accommodate BlackLine. So there's some of that push-pull that we're working our way through. But the things that we can do to shorten time to value, we have focused on. We've gotten better. I think Patrick would say, in the first quarter, we had a fair number of deals that rolled into the second quarter.

Many of them closed sort of prior to the end of the second quarter. The second quarter deals that extended, most of them have now closed. So we've shortened that up a little bit. And I think if we think about the first half of the year, we still have one really large deal that hasn't closed, but basically all the other 7-figure deals at this point have closed. I think from our vantage point, we're not losing. It's just being delayed. So these questions of if versus when is good for us because it's just a timing issue.

Okay. And then Patrick, I guess, what are you kind of assuming in the outlook right now?

So everything Owen just said is factored into the current guide and still a little on my thunder there. But the way I'm looking at it from a data-driven, fact-driven numbers-driven analysis is those large deals at the end of Q1 that slipped took x number of months to close. It took several months towards the end of Q2, even some of them slipped into Q3. And the reason for that was education.

It was our customers understanding what's the art of the possible of AI back in February when this all started or this narrative started at least, AI was the panacea for everything and companies are learning that's not true. And so they're getting smarter, but we're getting smarter, too. To Owen's point, our sales team is much more enabled on messaging, not just our sales team but our customer success managers and how they engage our customers and educate them. And so -- then we look at Q2.

We had slipped deals again, but those deals closed in about a month or so, all, but one of them. So the slippage rate is compressing. Now is the deal cycle the same as it was this time last year? No, but it's getting better. And so that's been factored into the guide. We think a couple more quarters of this education, getting the message out there, word of mouth, seeing what the art of the possible is and realizing that BlackLine is your first and only choice and trying to vide code your financial close is not the path you want to go as a CFO. So that has been factored in, and that's how we're evaluating it from a data and days to close analysis.

Okay. And so it seems like the changes you've made are starting to have an impact and at least are starting to change things. I guess any read-through, I guess, so far through 3Q, at least for net new things kind of extending or anything?

They never let me answer anything because I say things I'm not supposed to, so I'm going to look at him.

Go ahead, Patrick. -- keep me out of trouble.

Anything new we're seeing for Q3?

Yes, I guess asking like you saw the deals slip from Q2, like are you seeing the, I guess, the closure rates in 3Q or anything is -- are the changes you're having, having an impact in terms of like sending the tide there?

Yes. It continues to improve. We're getting much sharper on build versus buy. We're getting much sharper in understanding the risk of trying to build. And now we're putting some real numbers behind it. There are studies out there saying where you should use AI, where you should not use AI. Was it RBC, Deloitte, a couple of other studies saying, this is your total cost of ownership if you try to build something like this in your financial system ecosystem. And the short answer is for a CFO, the ROI doesn't justify trying to build something like this. So it's not just us out there messaging it. There's now third parties, there's experts in the field that are out there validating what we've known, and that's very important when we go out there and compress those deal cycles.

Okay. No, that's great to hear and very clear there. Maybe it's a good opportunity to talk about your own AI capabilities and what you're putting out there with Verity. I guess as you look across those agents and you look across what you're doing with 360, just what have you seen so far from adoption trends and customer interest? And I guess, what's kind of resonating at this time as you talk to customers of those solutions?

So a couple of things to -- that are important. So one is almost all of our innovation we do through the lens of our customer and our partners, right? So there's -- we talk to them about what they want to see built, and we then build it sort of almost in conjunction with them. There's a lot of prototyping before we go to early adopter and then general release and then those customers become pretty good advocates for us.

I think the thing that we saw is originally, we had sort of an opt-in model for AI. We switched that to opt out, and we had conversations with all of our customers about that. Very few customers have opted out of our AI capabilities. We're starting to see, and we saw certainly from the first quarter to the second quarter and now early indications in the third quarter, really positive trends of our customers using things more and more.

And so we feel really good and confident about that. It will be interesting to see when we cross those thresholds where they start paying for consumption because they're getting more productivity out of using our AI. All of our products now have -- all parts of the platform have -- are AI-enabled or AI native at this point in time. We'll have a lot more again to share and announce in November. But I am blown away by what our product and tech team has been able to do. I mean they really have taken the challenge to sort of reimagine and rethink the way BlackLine builds its products, brings it to market and our ability to innovate has been just shockingly good to me. I mean I've really been blown away by it.

Okay. I guess, great to hear that it's -- the products are resonating. When do we start to see that kind of flow into monetization? And when does that upside on the usage actually drive new revenue for you all? .

So we're already seeing it. The proof is always in the numbers, and we're just seeing Phase 1 right now. So let me explain what that means. You can't separate the AI story from the platform story. So we signaled at the beginning of this year, we ended 2025 at 11% of eligible ARR on the platform. We targeted and set a goal of 25% by the end of this year, and we have a very clear line of sight for that 25%. We feel very confident in that.

And that is a product-led initiative. And so just to recap just a quick brief history here, when we launched this platform pricing initiative and start researching it in 2024, it was about unlimited users. That was the value proposition. And in 2025, we started with that. And we saw great uptake, 90% plus with our new logos, but we didn't quite see that uptake in our existing customer base because most of them had already optimized the number of users that they needed.

As we built Studio360 and developed it and also then start building agents that operate within Studio360, it went from an unlimited user story last year to a product-led story. And what I mean by that is, if you're a customer and you want access to our agents, you have to be on the platform. That's why we're seeing the acceleration in terms of the percent of ARR on platform.

We're going to go from 11% to at least 25%. That's 14% this year. We're going to enter what I would call the S-curve of adoption next year and see that accelerate even more. That's very important because that acceleration, that rate of conversion is -- will generate at least 2 points of incremental ARR growth or revenue growth above and beyond our current run rate. So our current run rate is 9.5%-ish, add 2 points to that, we're at 11.5% next year on a guide of 13% before we even factor in FedRAMP, KSA, our other products and several other growth levers that we have.

So that's why we feel confident not just about where we are now, but where we're going for 2027, and that's step one of the monetization. Now step 2. Each customer that adopts our platform gets a certain number of transactions for free. And that's very important. We don't sell tokens to customers because people like me, a CFO, doesn't want to buy tokens. I have no line of sight on the amount of token usage. I don't know what outcome that generates. I don't know what that does for my business.

I don't know how it affects my strategy. You need to sell people like me an outcome. What do I mean by that? Okay. How many reconciliations is an agent going to perform now on your behalf? How many journals is it going to book? How many phone calls is it going to make to delinquent customers on your behalf? Those are metrics every CFO knows inside and out. That's an outcome. There's a real cost to that. There's a real value to that. That's what a CFO is willing to pay. So we give these agents in a small sample size as part of the platform uplift.

And that allows CFOs and controllers to test the agents to make sure that they work. It's a requirement if you're a public company. That typically takes a couple of quarters to get your internal and external auditors comfortable, meaning you have the agent running over here, you have your historical manual process over here. The outcome has to be identical for all transactions.

Once you prove that on a sandbox or sampling basis, then you can release that agent into your entire population, your entire ecosystem. That drives up consumption, that drives up transactions. That's when you go through that free tier of agents that we provide to our customers.

Once you go through that, it becomes tiered pricing, and that's round 2 or Level 2 of our monetization. First, you get the uplift. A couple of quarters later, you start driving AI-based consumption revenue that we've never done before. That's why we feel so good about 2027 and thereafter in terms of our AI story and our innovation.

I guess to your point there, I mean, as a CFO, you worry about incremental costs coming through and I guess, a consumption-based model, like when you have these solutions, is this more about becoming an outcome-oriented model that is, I guess, underpinned by the consumption and you're selling 1 million reconciliations or whatever the number is, and that's the point of it versus driving the consumption?

It has to be. That's the only way you're going to effectively sell this because a CFO needs cost assuredness. You have to have control over it. You have to have a line of sight of it and selling somebody like me tokens does not work because I don't know what that means. I have no visibility into it. So every CFO knows how much time his or her team spends on booking journal entries, doing reconciliations right down the line of all the financial close and financial reporting process.

That time is money, that money is value. And so that's the outcome that you're selling when you sell these agents. I'm going to come in and this agent is going to perform this many reconciliations, et cetera, et cetera. I can immediately as a buyer, associate a cost and value to that, and that's what I'm willing to pay for it. So that's how we're going to market, and it's really resonating.

Okay. No, that's great to hear. I guess maybe on that kind of similar line of thinking, when you start rolling out these products, these solutions, how do you think about the value capture that should kind of come to BlackLine versus what accrues to the customer, what accrues to some of the other underlying model vendors and things like that? Do you have a framework to kind of think through how you capture that ROI?

From a selling standpoint?

Yes, from a selling standpoint.

So yes, we have a very good idea in terms of we, right now, legacy BlackLine, I'm putting example numbers out there because experiences are different for every customer, depending upon if they're mid-market or enterprise or multinational or domestic only. But long and short of it is, we know the level of automation our customers experience without AI, and we know what incremental level of automation these ages deliver.

That incremental amount, let's say, it's 30%, 40%, 50%, 80%, that's the incremental value. So the willingness to pay above what we are currently charging them is a number less than that, right, because we both want to benefit. We want more revenue, but they're not going to pay for every single dollar of incremental value. They want to see benefit, too. We find that equilibrium. We have a very well sold out model for that. We know inside out how our customers are using our product, and that's how we price it to our customers.

We know, okay, based upon how you're using BlackLine, we can deliver a 50% compression on this cycle, and we know how much that's worth to you. We'll raise your price 20% or 30%, so we both win.

Okay. That makes sense. I want to pause to see if there's any questions in the room here. Okay. Maybe shifting gears on -- maybe talking a little bit on the go-to-market side. Maybe we can focus on SAP and the relationship there. I guess to start, just kind of where are we in terms of that in terms of them point in incremental deals and is there more things that need to be done from an operational perspective to make that relationship closer and tighter net moving forward?

So in so many ways, it's a wonderful relationship, but right? And so look, I think when I go back to when I was over there in November of '24 talking with their leadership about trying to reset the relationship with a number of key things that we've laid out in prior earnings calls and the things that we said we would do around product road maps, customer success, go-to-market, launching into different geographies, things of that nature. In so many ways, both sides could sit there and say, check, check, check.

I mean probably the most significant thing is if you look on SAP's website, they have a golden architecture, which in the heart of it is BlackLine and how that all fits together, and that's a really big deal. The work that we've been able to do with SAP Joule and BlackLine Verity has been incredible. We feel really good about all that. That said, it's still not moving the number the way that we certainly would like from a BlackLine perspective.

So as you guys all know, we've had about 26% of our revenue comes from deals with SAP. And despite all of our best efforts, we're still at about 26% -- so next month, when I go over to go visit with their leaders, that's really one of the topics we want to understand because we've made so much investment in the product side, the customer side, trying to go to market together more. So why isn't it showing up? I mean we have some pretty good viewpoints, which is their customer is typically the CIO.

Ours is somewhere sitting in the office of the CFO. And there's just -- they just speak different languages, that we all speak different languages to each other and where our comfort zones are. And so we've got to get better at figuring out how to get into the same rooms where you get a CIO, CFO, BlackLine and SAP and maybe an SI in the room together. I do think AI actually is going to be a facilitator of that. because we've had a lot of good success with what we've built from an AI perspective. I think that's been well acknowledged by the SAP leadership.

And so how do we work with the CIO and the SAP account rep to sort of bring more BlackLine AI to the table? And do we have the incentives aligned the right way to drive more of that. So when I think about like the upcoming meetings we'll have, we'll focus on the product road map, what are we doing there and how do we really monetize that so that it performs better than the rest of BlackLine does on a stand-alone basis and then continuing to focus just on the innovation and the things we're going to reveal in November BeyondTheBlack are those things that we'll talk to them privately about what we're driving towards. So again, I feel very fortunate and blessed that it's the relationship we have. But from our vantage point, we just would like to get more more penetration out of it.

I mean I guess to that point, I mean, considering it's been pretty locked in at that level, still seeing the growth acceleration come through feels like it's a pretty good validation of everything else that's kind of going right around BlackLine. So like do you feel like if you get that right, that's a big incremental unlock that should drive a further acceleration versus the 11.5%, 13%...

But again, it's -- we just got to keep pushing on it. And I have to remind myself of this. So it's interesting in some ways, the closer we get to SAP headquarters, the worse we do. And that's just -- it's almost counterintuitive, but our greatest success with that organization in North America and then it's in England and in France. And then closer we get to the DACH region and the Nordics, it just has proven to be a little bit harder. And so for us, we've just changed out a bunch of our leadership in those markets, brought in some fresh folks trying to sort of reinvigorate and drive that relationship forward.

And so there's no reason we shouldn't be able to do more there, but we just have not gotten it right at this particular point in time. And that said, there's still plenty of opportunity for us sitting here domestically. You'd be surprised still how many accounts SAP is in that BlackLine is not there yet. So it's tens of thousands.

Okay. Okay. That makes sense. I guess as you think about the go-to-market moving forward here, what do you -- where are you kind of like placing your bets for incremental spend to drive the go-to-market and kind of what do you feel like are the biggest incremental areas of build-out that you still need to do from here?

Yes. So like every organization, probably we're continuing to figure out how to get more boots on the street to carry a bag to sell BlackLine and then how do we pay for that by cutting what goes on in the back office through the use of technology or the use of offshore resources or a combination of the 2. So when I look at what are the opportunities, certainly, upper end of the mid-market, enterprise, mega enterprise is a target-rich environment for us.

And we see the net rip and replace we have from those customers. So that's one. Two is driving greater outcomes with our existing customers. One of the things that I think we were disappointed in the first half is we want higher growth in our existing customer base. That's 70% of our portfolio. So we need to do better there. We do want to get more boots on the ground in Central Europe. So when I say central now, I think, again, the Nordics, Germany, France, Spain, which is not exactly central, but I sound like an American without that. But sort of thinking about that there, we're continuing to invest in the federal government space.

We've seen a nice uptick in opportunities there. That's a very long cycle, but we knew -- and we spent a lot of money building our capabilities to be FedRAMP compliant. Currently IL-2 on our way, hopefully, Matt, IL-4 sometime next year. And then one of the bets we put on the board that hasn't paid off was the Middle East. So we had big aspirations for Saudi Arabia. We still do. But obviously, Middle East conflict has put a damper on that. But that's just a timing issue from my vantage point, and that will pay itself off.

Okay. Hopefully, that happens sooner or later.

A whole host of reasons, yes.

Yes. Maybe on the Fed opportunity, that has been a newer area for you. I know this is a big Fed quarter just in general, but how are you kind of viewing that opportunity right now?

So as I said to my Board in my note, I wrote to them over the weekend was we're excited about the Fed opportunity, but this is our first big year in it. And so our ability to forecast, we don't have any experience. So we're not really sure what to expect from it. The good news is I think we've gotten a lot of good airtime in front of critical agencies. I think we've shown well as an organization, auditability that the government is trying to drive towards is certainly to our advantage.

I know DOGE probably didn't unfold the way many people thought it would unfold, but there is opportunities from an automation perspective. Interestingly, and Matt would tell me this matter is our Head of Investor Relations, intergovernment accounting. So what they transfer payments from one agency to the other is quite the challenge. So that was sort of an unintended thing that we found in the process that we're going through.

And our software was built to comply with federal government accounting. That's a cash basis. And as Patrick would say, we do accrue our cash accounting. And so it lines up very, very well. And I do know the one thing that has been important is our security capabilities, the government has been very impressed with and then the volume of transaction activity that we can handle that has exceeded all their expectations.

So we'll see where it plays itself out. I think for us, federal government is just a timing issue now. And then importantly, one of the markets we're really trying to explore is because of the way Europe is beginning to decouple from the U.S. or the U.S. is decoupling from Europe or whatever way you want to describe that, some of the things we're doing around data sovereignty in Europe, which we'll talk about more in November, sets us up potentially well to work with some of their more sensitive industries and also government in Europe is something that we're really looking at.

Okay. That's great to hear. In the last few minutes here, I do want to ask a little bit about '27. I know you gave some initial indications. We talked a little bit earlier about some of the platform and AI assumptions that are being made to drive that acceleration. But yes, just maybe can you walk us through the overall assumptions that are underpinning that growth excel? And how do we think about net retention improving, the installed base converting to platform, Verity monetization and I guess also mid-market kind of rolling off as a headwind that's in there, too.

Yes. I mean you hit on many of them. But if you want to build it up, starting maybe at the 11.5% where I left off, that's a 9.5-ish percent run rate that we're at now, plus 2 points from platform conversions. Now that's just the conversion. That's the initial 10% to 40% uplift upon renewal that gets you to 11.5%. So you build from there. We do have some FedRAMP in there.

We're getting much smarter there. As Owen just noted, we're having very meaningful dialogue now with notable opportunities. So that is a building block in there, let's call it about [ 0.5 ] point to 1 point at least. In addition to that, we have KSA. We're hedging our best there based upon some of the geopolitical matters going over there right now, but that has a significant up potential in terms of that market.

These are in no particular order. Consumption of our agents, that is not part of that 10% to 40%. That's a monetization of something that we never monetized before. Right now, if you buy our product under user-based pricing, you get unlimited reconciliations, unlimited cash. Now these agents as they perform the work of accounting and finance professionals, we're monetizing that on a transaction level. That's another 0.5 point to 1 point at least. So just seeing the building block.

And then, of course, we've had a lower mid-market story here for about 3 years in terms of the churn that we're experiencing. We stopped selling into that market 3 years ago. We're seeing that dissipate. We're at the tail end of that. And going into '27, that will go away as well. So that's a growth through a reduction in churn. And then lastly, overall, in terms of how our customer success managers, how our solution consultants are engaging our customers, we are continuing to see an improvement overall of churn and attrition.

Our platform is stickier. Our product is stickier. We're seeing better rates of consumption. And the more you consume, the less likely you are to churn and attrit. And that's part of the growth story, too. It's not just all bookings, but it's also the mitigation of the existing ARR base, the erosion of that ARR base as well.

Okay. Perfect. In the last minute here, maybe we can just touch on BeyondTheBlack coming up in November. What should we kind of look forward to going into that event?

Yes. A lot of product innovation, some announcements with some of our design partners for what we call BlackLine 3.0 and some of the things that they're doing, building on top of BlackLine. And then I think you're going to see some real interesting stories around how our customers are using our AI and then building on top of BlackLine with their own AI capabilities.

So I think those are probably the bigger things that I'm thinking about. And obviously, the other one is just, again, as we started earlier on with the financial control console and how you govern AI across the office of the CFO. So those are probably the biggest things that we'll be talking about and showing there. And there's a couple of other maybe a little surprises we'll have for you guys.

All right. Perfect. That's great. Great to hear. But Owen, Patrick, I want to thank you so much for joining us today. Great to have BlackLine here.

Thank you.

Thank you.

Good day, and thank you for standing by. Welcome to Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Matt Humphries, SVP of Investor Relations.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine; as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine's Chief Technology Officer, join us.

Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q3 and full year 2026, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially as these statements are based on our current expectations as of today, and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today.

Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt. Good afternoon, everyone. I want to start this quarter with a short overview of the financial results before Patrick does a deeper dive. I also want to walk through the deal timing dynamics that shape this quarter and then give you a sense of the period we have just lived through because I believe the first half of 2026 is likely the most consequential period in this company's 25-year history.

This was a good quarter on the measures that matter for discipline and durability. Revenue grew 9.2%. Non-GAAP operating margin came in at 23.3%, and we generated $37 million of free cash flow. Now on deal timing, it has become harder to predict this year. AI has put every finance organization in the position of reevaluating what they spend on and why, and that evaluation takes longer.

Here is an example. We were recently selected for our first ever sovereign cloud opportunity with a large European company whose security and data requirements are among the most stringent in the world. We won the competitive evaluation included the legal, security and technical reviews, and we are now working through the final details to close on this 5-year 8-figure deal. Even with both sides aligned and committed to a June 30 close, a deal of this size and complexity simply takes longer to get across the line than either party would like, which is exactly the dynamic I am describing. This elongated time line shows up mostly in our mega enterprise pursuits. Customers are evaluating more than just software now. They are also going much deeper into BlackLine's AI governance model, our product road map and how we sit inside their control environment before they sign. That calls even more security, risk, compliance and IT professionals into the room alongside finance and everything is simply taking longer.

More of these conversations have become formal build versus buy assessments and buying is beginning to come out far ahead. That clarity does not shorten the evaluation itself, so the time line stretches even when the outcome is clear.

In total, approximately $8 million of opportunities we expected to close in the second quarter slipped for similar reasons. This business has not been lost. We have already closed half of it, and we are making solid progress on the rest.

There is a second dynamic we are seeing, which is expected. Our platform pricing offers unlimited users. As more of our base moves to platform, we're seeing less lift from user adds. We are making that trade on purpose, usage and value over seat count, and it means near-term growth will understate actual demand until platform and AI adoption reached scale.

We are winning long-term strategic relationships. RPO grew 17% to over $1.1 billion, clear validation that underlying demand is strong. Nearly 90% of net new business this quarter landed directly on platform pricing. New deal sizes are up 24%. Multiyear commitments were 56% of this quarter's renewal book, up from 45% a year ago. This is a customer base making bigger, longer commitments. Platform adoption is broadening across the base 2. Eligible ARR on platform crossed 17%, up from 13% last quarter and current RPO [indiscernible] will recognize over the next 12 months, grew 11%. That is the near-term picture.

Now to the period we have just lived through. AI is going to be a multiyear transformation in the office of the CFO. I will walk through it in 4 parts: the context, our platform strategy, the validation showing up with customers and what we are seeing across the market. On context, the pace of AI, our own product development and the time we have spent in market has been more intense than anything that ever came before it. Over the past 2 quarters, we have had hundreds of meetings with CFOs, CIOs and CTOs, met with capital markets regulators, accounting standard setters and the leadership of the 7 largest global audit firms. We also met with the CEOs of adjacent office of the CFO companies, large European enterprises focused on data sovereignty, BPO firms reinventing themselves and the Frontier labs building the models everyone is working to deploy responsibly. Those conversations reinforce our confidence in BlackLine's direction and the pace at which we are building.

On platform strategy across these conversations, the same theme kept surfacing. When AI scales, governors must scale with it. Studio360 is our platform layer for the office of the CFO, and we have embarked on its next evolution to meet that need. Recall what it enables Agentic financial operations, a model where humans and AI work inside the close, equally visible and equally governed. Here is why this matters.

Gartner expects the average Fortune 500 company to be running more than 150,000 AI agents by 2028, up from fewer than 15 last year and fewer than 1 in 5 companies believe they have the governance to manage that scale. That is the [ GAAP ] Studio360 closes in accounting and finance. In June, we unveiled finance control console, the control and governance plan for the office of the CFO. Every agent regardless of who built it, runs from a single registry must be BlackLine certified before acting in a live process and operates inside a policy layer, no customer can override. Every action and every human decision rights to an immutable audit trail. So any close can be reconstructed exactly as it happened, working alongside the deterministic rule-bound workflows underneath. That combination is what management teams, auditors, audit committees and regulators are asking for.

The deterministic engines [indiscernible] that all already runs multiple autonomous closed workflows simultaneously. And because the governance layer is both independent of any single model, our customers' investment in it only grows more valuable as foundation or open source models change and improve. That Is what extends our lead over anyone building this from scratch and why BlackLine is the long-term partner for this transformation.

We hear this directly. We are in the room with the big 4 audit firms, the standard setters for internal auditors and the regulators who matter most and their message is consistent. AI cannot be a black box. Every step has to be evidenced, our models are tested for bias and failure modes and signed off before reaching production with humans reviewing, approving, overriding or halting the pros at every stage. AI proposes people decide and is covered by the same internal controls over financial reporting framework as everything else in the close. That is the kind of trust that CFO requires from the partner behind the financial statements they personally attest to, and that trust takes years to earn. That trust does not happen by assertion alone.

And I want to be clear about where that friction still sits. It is an adoption, not the product. Customers are careful about trusting AI inside close critical accounting processes. Security and risk teams are getting involved earlier in the sales cycle, partly because many regulators still have not finalized guidance for AI. We are not waiting for this to resolve on its own. We expect AI [ UC-1 ] certification in September, an independent third-party standard built for AI agent security and reliability. I'm proud to say we help shape this standard as a member of the consortium. That gives customers real upfront validation about BlackLine's trustworthiness. We'll go much deeper on all of this at our BeyondTheBlack Conference in November.

On the validation, here's what our customers are telling us and doing. The Studio360 platform is what our AI runs on and adoption across our base is now measurable. Roughly 3,500 of our eligible customers above 90% of that base are AI-enabled today, and roughly 3,000, about 77% are actively using AI in their financial operations. Feature usage reached nearly 13 million actions in the quarter, up over 220% sequentially. Customers are embedding these capabilities into how we close the books every day inside the same controls and audit trails they have trusted us with for years and validating the results through parallel testing. This usage is already showing up in revenue.

Verity Prepare alone has been a key lever in more than $20 million of platform ACV to date and a growing number of customers now pay for it directly as a stand-alone product. That is driving further platform upsell with over 80% of that interest tied to our maturing Verity suite as the primary reason. And because full access to Verity requires platform pricing, this is exactly why platform ARR is tracking toward our 25% full year target with mega enterprise already above 21%.

Platform adoption drives agent adoption, and together, we expect these to contribute at least 2 points of incremental revenue growth next year on top of the acceleration already visible in our contracted backlog. On the breadth of what is driving growth, we started by embedding a generative AI capabilities across the platform, and we have since built a full suite of Agentic capabilities natively into that foundation. This suite is a set of complex multi-agent systems working across a customer's full set of accounts as they run, they are servicing new use cases, hundreds already with more emerging every month. Each one is a further opportunity to monetize our AI. That surface spans both record to report and invoice to cash.

New business is where this becomes concrete. Two of our Agentic offerings, Verity Accruals and Verity Prepare show the clearest evidence. This quarter, we closed multiple Verity Accruals deals, including with a multibillion-dollar U.S. hospital system a global consumer technology company and a leading cybersecurity company alongside a steady stream of mid-market wins. This is one product adopted across every tier of our customer base. Verity Accruals is expanding quickly. We are adding new agents for payroll and prepaid accruals this year, extending into 2 of the most manual judgment heavy parts of the close. Early customers are already closing up to 3 days faster and spending 80% less time on accruals work.

Verity Prepare coordinates a team of specialized agents that ingest documentation, identify reconciling items and assemble a complete audit-ready package or human sign-off, delivering up to 94% reductions in preparation time. Customer count grew nearly fourfold quarter-over-quarter. Revenue is not yet material, but growing nicely. The pattern we expect is emerging as customers start narrow and then expand use cases as their confidence builds. The examples show why this is resonating, one of the largest pharmaceutical companies in the world tested whether they could build its record to report workflows on a general-purpose [ LLM ]. They learn quickly that a model generating suggestions cannot coordinate a full workflow the way our multi-agent architecture does with the transparency auditors required built in from the start, so the company chose to go deeper with BlackLine instead.

Another top-tier pharmaceutical company already live on our intercompany platform is deepening its use Verity because it is built on a real accounting logic and compliance. And a major health care company converted to platform pricing this quarter to gain full access to capabilities at already seeing work as an early adopter. Three companies, 3 different reasons, 1 conclusion. A customer does not need to build a new governance framework to deploy AI and finance because BlackLine already is that framework.

Platform pricing is to gate customers pass-through to access our Agentic capabilities. That is why deepening agent adoption inside an already converted customer is a natural driver of expansion revenue. Proof of value that extends platform adoption across that customer's business. Verity Match makes the same case elsewhere in the close. It is an early adopter testing with general availability expected soon. Our rules-based matching solution already resolves most transactions automatically, but the remaining exceptions of small share of volume take up a disproportionate amount of time as each one requires manual investigation. Verity Match targets that tail directly. Running at production volumes with our early adopter customers, it brings total match transactions, automated and AI resolved combined to 90% while cutting manual investigation time by roughly 2/3.

The same governance model extends into invoice to cash as well. Verity Collect is our multimodal agenda collections offering that is being tested by customers currently. Verity Remit, our Agentic remittance agent is cutting manual effort by more than 95% for our best-performing customers. Verity Remit is on track for general availability this quarter and Verity Collect in the fourth quarter.

Our largest partners, such as Accenture, Capgemini, Deloitte, E&Y and KPMG have had strong years with BlackLine, building record practice revenue. They see the opportunity to build an evergreen business on our controls layer instead of trying to build their own. Our relationship with SAP is deepening 2, with 2 milestones expected in the third quarter. We are working to enable platform pricing for SolEx customers, and we expect Verity Accruals and Verity Prepare to retrieve SAP premium qualification.

Finally, on the market, the clear signals that the largest, most complex enterprises in the world are standardizing on BlackLine as their control layer for finance, and this quarter's wins prove it. We won new customers, including Vodafone and the leading global market data platform. We also expanded major relationships with Royal Dutch Shell, a mega German health care company and a large private telecommunications company. Subsequent to quarter end, we also closed 2 of the top 6 largest U.S. banks, both who signed long-term 7-figure deals with BlackLine.

Net new business has been a bright spot in the first half. Verity Adoption has been growing across every segment and platform adoption is scaling fastest with net new business, where customers are landing directly on platform pricing from day one. Platform conversion inside our existing base is moving on each customer's own time line. Customers are timing their move, often with their renewal date. Many customers want additional proof points before moving more time in the market for our new Agentic offerings, a referenceable peer they can point to and support from their audit committees and auditors.

We are now putting our own professionals inside customer environments, building a working proof of concept on the customers' data to overcome reticence. That same conviction in the enterprise extends to the middle market, where our Agentic offerings are built for faster time to value with less implementation overhead. We are refreshing how we package and price for this segment to match how mid-market companies are evaluating and buying.

We also see real opportunity in new markets. Public sector has been a strong area of progress with new deals closed and multiple proofs of concepts underway with civilian and defense agencies. In the Middle East, the war has slowed our progress, though we still see it as an attractive market given our infrastructure investments the depth and breadth of our go-to-market partner network and continued interest from prospects.

To close, I believe this has been the most consequential period in our history. Our Agentic financial operation strategy is rapidly maturing. The proof is showing up in real product, real adoption and real new business. The market has tested us with more scrutiny than ever, scrutiny we are built to meet. We're responding with speed. Our position is strong, and we believe the opportunity for BlackLine is larger now than what we described last year.

With that, let me now turn it over to Patrick Villanova.

Thank you, Owen. Our second quarter results reflect a business with strong profitability and cash generation, healthy underlying customer economics with a quarter shaped by the deal timing you just walked through.

Going a bit deeper on the financials this quarter. Total revenue was $187.8 million, up 9.2% with subscription revenue growth of 9% and professional services revenue growth of 11%, reflecting strength in go-live activity and early AI deployment with customers. ARR grew to $719 million, up 6% or approximately 7%, excluding an approximate 1 point FX headwind. Calculated billings grew 6% in the quarter with trailing 12-month billings growth of 7%.

Two factors explain the gap between these metrics and our subscription revenue growth rate. One is timing tied directly to the deal dynamics, Owen just walked through, a number of large strategic deals moved past quarter end, several of which have now closed. The other is tied to our success with platform pricing. As more of our base moves to platform, which is unlimited users, we see less organic lift from user expansion than we've historically experienced. That effect persists until platform and AI adoption scale enough to offset it.

Remaining performance obligations, or RPO, which captures the full value of multiyear contracts we are signing was over $1.1 billion, growing 17% well ahead of both revenue and ARR growth. Current RPO, the portion we expect to recognize over the next 12 months grew 11%, also ahead of revenue and ARR. Both are being driven directly by the same dynamic Owen described, larger deal sizes and a higher mix of multiyear renewals. Bigger, longer contracts capture their full value RPO immediately while ARR reflects only a single year regardless of contract length. So RPO naturally grows faster as deal size and duration increase.

Current RPO growth is the best leading indicator we have of where revenue is headed since it reflects the business already under contract converting over the next 12 months. We expect at least 2 points of incremental growth from platform conversion and Agentic adoption and that is the mechanics behind our view of exiting this year at double-digit growth with further acceleration in 2027. Platform ARR as a percentage of eligible ARR grew to over 17% continuing to track toward our full year target of 25% with even stronger traction in the mega enterprise segment, where that figure is now over 21%. Our SolEx channel and broader SAP relationship continue to contribute, and we see further opportunity as platform pricing and premium qualification of our Agentic offerings opened new avenues into SAP's installed base, SAP was 26% of revenue.

Turning to retention and renewal trends. Dollar-based net revenue retention was 102.4% or approximately 104% normalizing for FX, driven by platform migration and cross-sell of invoice to cash matching and journals, offset by lower levels of user adds. Our enterprise revenue renewal rate remained strong at 95%. Middle market logo count this quarter reflected the tail end of a lower mid-market cohort we've discussed in prior quarters. It's tracking as we anticipated, and we expect that to ease further from here.

Now let me turn to profitability and cash flow. Non-GAAP gross margin was 80.4% with non-GAAP subscription gross margin of 83%, continuing to expand as we sunset legacy private data centers and drive further efficiencies in cloud spend. structural improvements that keep compounding rather than onetime gains. Non-GAAP operating margin was 23.3%, up from 22.1% in the second quarter of last year, driven by disciplined execution and the operating leverage we are building across the business, including efficiency gains from our own use of AI in internal operations. Non-GAAP net income attributable to BlackLine was $42.9 million, with adjusted earnings per share of $0.61. We delivered operating cash flow of $45 million and free cash flow of $36.5 million. We expect stronger free cash flow margins in the second half, resulting in full year free cash flow growth of approximately 20%.

We ended the quarter with approximately $528 million in cash, cash equivalents and marketable securities versus $667 million in debt. We repurchased 1.2 million shares in the quarter for $38 million, ending the quarter with approximately $180 million of capacity remaining under our existing program. And today, we announced that our Board approved an additional $100 million increase in our stock buyback program, bringing our total available capacity to approximately $280 million. Outside of M&A, we expect to use approximately 100% of free cash flow for repurchases over the remainder of the year, generally in line with our pace through the first half.

Looking to the back half of the year, several of the deals that slipped out of the second quarter have already closed, and the current RPO growth I just described tells you the underlying contract business continues to convert on schedule. Our pipeline continues to mature with larger, more strategic deals moving through it. Platform conversion and strategic products remain 2 of the biggest drivers of incremental growth. Several product releases also land in this window. Verity Match reaching general availability, new payroll and prepaid accrual agents and SAP premium qualification for Verity Accruals and Verity Prepare along with platform pricing availability for SolEx customers.

On FX, back in May, we called out a modest revenue headwind of $1 million to $2 million for the year. Exchange rates have moved further against us since and we now expect roughly another $1 million on top of that concentrated in the back half of the year. Even so, our third quarter and full year revenue guidance ranges still imply exiting this year at double-digit growth, with this incremental headwind absorbed.

Now on to guidance for the third quarter. We expect total GAAP revenue to be in the range of $193 million to $195 million, representing 8.3% to 9.4% growth. We expect non-GAAP operating margin to be in the range of 24.5% to 25.5%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $45 million to $47 million or $0.62 to $0.65 on a per share basis on approximately 74.5 million diluted weighted average shares.

And for the full year 2026 we are maintaining our range for total GAAP revenue of $765 million to $769 million, representing 9.2% to 9.8% growth. We expect non-GAAP operating margin to be in the range of 24.1% to 24.6%. And we expect non-GAAP net income attributable to BlackLine to be $177 million to $182 million, or $2.47 to $2.54 on a per share basis on approximately 74 million diluted weighted average shares.

Operator, we're ready for questions.

[Operator Instructions] Our first question comes from the line of Chris Quintero of Morgan Stanley.

I wanted to ask about the friction and adoption that you all called out makes a lot of sense given this is a very important software, touching financial systems and data. But from your perspective, what do you think you can do or have been doing to help speed up some of that adoption on your end?

Yes. I think, Chris, first of all, good to hear you. And I think the short thing is if you go back and who we're talking with, right? We're working with the audit firms, we're working with the regulators. We're working with the internal audit standard setters. Obviously, we're working with our customers, working with implementation partners and then working with the customers themselves on what they need to move forward. So and I said in the prepared remarks, the amount of time we're really spending in the market with all those different constituencies because all of them have their interest aligned to some degree, but they all have different responsibilities than how they fulfill those responsibilities.

So for us, what's been critical is being in the room really showing in Germany has been the one driving that along with Patrick how our AI works and how it doesn't need to be a black box, so we can show all that transparency through what we call a glass box so that you can see the human in the loop, you can see the chain of thought, you can see the tens of thousands of transactions we keep running to show that we can get to the same answer over and over under different scenarios. And I think that's what's really trying to prove the comfort and confidence that our customers are looking for.

And so I think the thing that we're seeing is a building belief in the reliability of what BlackLine can provide and control for our customers and the various constituencies that need to sign off on the financial statement. So that's at its core.

Got it. That's helpful, Owen. And then on those deal elongation that you're seeing, can you remind us what a typical deal cycle looks like for you all? And how does the new kind of deal cycle where [indiscernible] today? How much more elongated versus your prior ones?

Yes, Chris, I mean, we typically, in the enterprise space, we talk about 9 months to a year and these are not the most precise numbers, but you could say that the deal cycle is elongated by another 40, 45 days based upon the work we're seeing. That's just an average, but some of them could be longer. Some of them could be a little bit quicker.

But again, really what's driving it is, more than anything else, you have, in essence, a new technology in the marketplace. And all the people on the buy side from the customer, there's people asking new kinds of questions around truly around how do we govern our AI? How do we use the different models? How do we protect their data? How do we think about sovereignty as they cross borders? How do we think about it, there's political disruption where models can't be used in certain geographies? There is more questions now about the vulnerability because of AI-enabled hacking and how our defense and security around all that.

I mean the good thing is these are things we're well, well built to answer and respond to, but it does take more time as customers are asking those questions. And the big deal that we described that we're still working through the final terms on is a perfect example. I mean, we literally had a war on put together with the customer and ourselves trying to work through everything through June 30, it's now August 3, and we still got a few things that we're working our way through it. And everybody wants to get it done but there's just safety protocols everybody is sort of thinking about.

So I don't think this is permanent, by the way. I just think that there's a learning experience that customers are going through. We certainly have learned a lot. We are equipping our teams with responses that they can bring to the market to sort of short circuit some of these additional questions that are coming through because we now know what the issues are. And quite frankly, even if the customer doesn't know what the issues are, we're trying to bring those more [indiscernible] front and center so that they know what they should be asking about and thinking about and then why BlackLine is very reliable and trustworthy in that process.

Our next question comes from Steve Enders of Citi.

Okay. Great. And maybe just kind of following on the prior questions from Chris. But I guess as we think about the year coming together and the deal delays I guess, how do you kind of have confidence in the challenges on the deal side, maybe stabilizing or improving and that we're not at a at a time where the deals keep on slipping just in your conversations, what gives confidence and that may be being stable now?

Yes. Look, Steve, I wish I could tell you we know exactly stable. That's why we said predicting things is just a little bit harder. That said, I think, again, when we look at our pipeline for the third quarter and the fourth quarter, the lessons we learned where we are in the stages of closing those deals. And then the bottoms-up review that [ Stewart Howton ] and his team run on every deal across all segments of the business around all geographies and by industries, it gives us a pretty good confidence of what we expect to happen on the back half of the year.

So I think we're seeing some good things around our customers' interest in our AI capabilities. You can sort of see some of the additional confidence. And I know I think I was reading one of your notes where you've got some proof points that you've seen in the market, but our customers are really responding positively. Our implementation partners have really been invaluable in helping us continue to iterate and improve what we're bringing into the marketplace. And I think that's all showing up really well in what our customers are looking for. And I do think you're starting to see a little bit more confidence in firms like BlackLine and what we bring.

And I don't want to say that the fever is completely broken where everybody wanted to build something themselves that we saw in the first half of the year but the fever has come down dramatically more. And I think as we -- certainly, for us, can articulate our value proposition on a build versus a buy that shows up pretty well. And so I think we feel pretty good about what we're trying to do in the back half of the year. Patrick, anything you want to add to that?

Yes. I guess to put some data behind that, too, Steve, and it's good to hear from you. Even looking back in March, at some of the deals that slipped in and the time it took to close them subsequent to March. And then looking again at June 30 at a different list of slip deals, and we've already closed half of them. So we're getting -- we're all collectively to Owen's point, getting smarter about this. We're getting more diligent short circuiting some of the -- to use his words, some of the questions that are coming. So we're seeing -- while we're still seeing some deal slippage, we're getting better at closing them after the quarter and that window is shortening, that time frame is shortening.

Okay. No, that's very clear there. And then maybe just in terms of top of funnel and opportunities coming through, how is that maybe progressing? And I guess, as we think about the AI opportunity and people assessing into those assessments, does that have any impact in terms of the opportunities you might be seeing coming through at this time?

Yes. So I don't have the July data, but through the end of June, our pipeline has never been more robust. It's skewing more towards mega enterprise and enterprise than it is mid-market. That's more of a global phenomenon than just, say, a North American phenomenon from what I've seen. And so you're starting to see things moving through -- continuing to see things moving through the pipeline. So I think we feel really good and confident about the top of the funnel. I think for us, again, now is the issue in the back half of the year is to continue to find ways to accelerate those close dates. And I think the team is doing all the things that they should be doing. Obviously, it takes a few people to work through this on the customer side as well.

But I think from a pipeline perspective, the positioning we have, particularly in the enterprise and the mega enterprise space, we like where we're at. And so again, I think gives us quite confidence as we head into the back half of the year.

Our next question comes from Rob Oliver of Baird.

I had 2. Patrick, I'll start with you on the overall RPO number, definitely really nice leading indicator there on deal activity. I know you said that agents are going to deliver, I think you said a couple of points in the growth going forward.

As you're looking at those longer-term contracts coming in here, particularly with new customers where you're having a lot of success with the new model, how are you accounting for the Agentic elements? How are customers accounting for those consumption-based elements around some of your products? And how do you get comfort around that contribution? And then I have a follow-up for Owen.

Rob, thank you. I appreciate the question. So Rob, you're absolutely right that the RPO story right now, the 17% year-over-year growth is a great story. It's not just indicative in terms of that we're landing larger deals that our average deal size is up 24% year-over-year, but we're landing longer-term deals as well. Customers want to be part of the finance transformation. And then existing customers that have been with us for years, they're renewing for longer periods of time. They're inspired, they're interested, they're intrigued by the product offerings that we have out there.

I can say this that in that 17%, there's not a material amount in terms of future Agentic revenue. But all of our customers that are signing new right now, we are discussing that with them. As we said in the prepared remarks, we saw a 4x increase in the number of customers on Verity. And we have now proof points in terms monetization of our Agentic revenue. That only represents a tailwind for us, and that RPO number will only grow with that tailwind into the future.

Great. That's helpful. Okay. And then Owen this could be for you or Patrick, a bit of a follow-up. But just clearly, new customers are embracing the new model here. You guys have done a really good job, I think, of showcasing the value to new customers. There's still appears to be some tension around existing customers. I think part of that clearly because of the SAP Select, which could be a potential unlock here for existing customers. But I know you said you're not forcing customers onto the new model. So lot of controlling happening. Can you maybe talk a little bit about as you're meeting with customers, you've got some very loyal long-term customers. What some of the pushback points are right now? Are those renewals or negotiations being brought to RFP? Is -- are there any additional tensions that are coming in around that process with some of your kind of strong multiyear customer relationships as they consider the new model?

Yes. I think -- thanks, Rob. I think Patrick and I'll tag team this a little bit. But so no, we don't have our customers going out for RFP. So that's not really the issue. You're right that there is some things around SolEx that make this a little bit unique, but we try to sort of talk about the eligible pool for going a platform versus the part that's not. I think there's a couple of things that certainly come out.

One is our customers, if they're pretty well adopted there's always this push of, well, how much more am I going to get out of this, show us more proof point on your road map, show us other examples. And so they're sometimes just taking a little bit longer to win over their hearts and minds, if you will, from what we've seen. And then sometimes, it's just where these customers are on their own journey and all their other competing priorities. And so even though they might want to increase their commitment to BlackLine because of some of the other things they're doing in their technology shop, they're not going to take advantage of that yet. So they're just saying or saying we don't need this right now. While I don't love that answer. I respect and understand that that's some of the things that they think through. Patrick, you're also dealing with us every day with [ Stuart ] and the team as well. Anything to add?

Yes, Rob, I would add, in terms of our existing customer base, and the uptake of the platform. That headwind was more of a 2025 story, and we saw that dissipate by the end of 2025. Right now, as the story has gone from unlimited users to product-led the level of intrigue and interest is increasing notably. That's why we feel so confident that we're going to get to 25% of eligible ARR by the end of this year, and we're exactly where we want to be as of June 30. So the model is holding together. The forecast is holding together it's proving out to be true and we continue to see that acceleration in the existing base as Jeremy and his team released more and more products solutions with an agent within the platform that our customers are interested in our existing customers.

Our next question comes from Patrick Walravens of Citizens.

Great. Owen, can you talk a little bit more about what exactly you guys mean by a sovereign cloud? I mean it was a company, not a country, right? And just what are the requirements there and how many of these kinds of opportunities are out there?

Yes. I'm going to let Jeremy take the lead on this. Go ahead, Jeremy, please.

So sovereign cloud really refers to the need to have data solvency. So customers we're increasingly seeing wanting their data to be fully within the borders of the country. And so sovereign cloud deployments allow us to deploy our solution into that environment, ensure that no data leaves ensuring that AI solutions and other software are fully hosted in that environment. You can think of it like FedRAMP in other federal markets, but for other countries and other regions of the world.

Okay. And is this -- are there a lot of these?

I would say the appetite has increased due to geopolitical events. And so you're seeing increasing desires to have control over data it has been a trend over several years that has been increasing over several years. The other is around AI models. AI model selection, which is why we are model agnostic has also been a topic for discussion where people want to be able to understand where their data is used. Insurer doesn't leave their country to meet compliance requirements and other areas. So you'll see in a lot of regulated industries.

Alright. And then if I could follow up, and hopefully, this is related. But in the -- in the prepared remarks, there was a comment about meeting with lots of CEOs and there was a comment there and the Frontier Labs building the models. What's the nature of those meetings and conversations?

Well, it's basically, if you think about it, when you're thinking about the conversations around build versus buy, obviously, the Frontier labs they provide, the tokens, the opportunity to build things and what we bring, obviously, is all the institutional knowledge of how this works. And so I think we're seeing the opportunity to help drive more speed to value for customers the ability to reduce risk as customers are trying to do this, helping them figure out the best way to get the best return in the most cost-effective way because I think as the Frontier labs think about what they do is they provide that sort of raw material that can be used in creating of agents. And what we do is to help create the right way to build those agents and in a very controlled and governed way and do that with customers directly as well as with our large system integrator partners, and we expect as well to be doing with our BPO partners.

But that's just part of it, Jeremy, and I've been doing these conversations together, Jeremy anything you want to add?

Yes. I think a large part of where AI adoption going is really in finance accounting to our critical workloads that need to have control, governance and auditability. You need to be able to reproduce those outputs on request for auditors they need to be immutable. And I think if you look at what these frontier models provide, they provide part of that equation, but they don't provide the auditability. They don't provide the governance. They don't provide those controls, and that's where we come in. And so those partnerships are critical to unlock more AI adoption in the office of the CFO in finance and accounting.

Our next question comes from Alex Sklar of Raymond James.

This is John on for Alex. I hope it's been touched on quite a bit, but maybe Owen on the sales cycles, what do you think can change heading into the second half to maybe close some of those deals I know you just called out broader complexity leading to the elongation, but any more commonality, maybe geographical differences or customer size dynamics that you're seeing differences in elongation on sales cycles. I have a quick follow-up.

Well, the elongation is definitely concentrated higher up in the market. So the bigger the company, the more people in the room, the more questions the more checks and hurdles that we're working our way through. And I -- as I think about whether it's North America, Europe, Japan, the rest of Asia Pac, I'm not sure that we're seeing anything really different materially, certainly between Japan or amongst between Japan, Europe and North America, I think those standards are continuing to be very, very high as to what we have to meet.

And so I think a lot of this, Alex, is us continuing to work and educate the buyers about how, again, it works within BlackLine. And then I was just getting smarter to accelerate our ability to respond to those questions, both holistically, whether it's by industry or geography to your point, or comparable size. I mean there's just a whole bunch of things that we're learning each and every time. And as we learn things in the field, we bring it back to the center and then try to get it back out to our team so they can be that much more effective and efficient as they're working with prospective customers and existing customers.

That's helpful color there. And I wanted to ask on the mid headwinds you've been facing. Are we getting close to a point where those dynamics begin to reverse? And can you remind us what's sort of embedded in the outlook? And do you still expect to be through this dynamic of the exit 2026?

Alex, just you cut off briefly there. You're referring to the mid-market? Yes. So Alex, everything is playing out as we expected as it relates to the mid-market, the lower mid-market just to be clear. We track that cohort of customers very carefully over the last 3 years. We see that built into the outlook or it is built into the outlook for the remainder of 2026 and we see that rate of churn amongst the lower mid-market dissipating or slowing down as we exit 2026. So we -- it is playing out as we forecasted or as we have been monitoring it, and that is built into the guide and for next year and beyond.

Our next question comes from Lucky Schreiner of D.A. Davidson.

Great. I wanted to ask about acquisition of [ Wise layer ] and how we should think about out there more complex agent capabilities and able to handle those more challenging judgment-based tasks, are trending so far with customers given your commentary around AI scrutiny from customers in terms of the deal cycle. And how we should think about that moving forward?

I just a couple of things, and Jeremy [indiscernible] tag team this. So first of all, I don't think we could be any more pleased with the acquisition of [ Wise ] layer. I think their team has been a phenomenal addition to the organization. I think on the go-to-market side of this, and I'll let Jeremy -- ask Jeremy to talk about the product side. it takes a couple of cycles to work your way through learning what the customers are looking for. I know one of the big improvements we wanted to make was linking the accruals capabilities to our journal solution, which was very important. We learned in the enterprise space as we were moving forward.

The pipeline for that part of our business has grown quite nicely in the second quarter as our own teams get more comfortable with its capabilities, but also as the [ Wise ] layer team has a little bit of time to breathe and get out in the market and do some of the things that we're asking them to do. So net-net, we have a Board meeting this week, I think we're going to tell the board. We're very pleased with the acquisition so far, not satisfied with what we think we can still do, but overall positive. But Jeremy, you want to talk about the product side?

On the product side, the [ Wiser ] team has been a great catalyst able to seed those Agentic AI capabilities and expand them throughout our portfolio. They have helped us accelerate that, not just in the capabilities themselves, but also how we work and how we write code. In terms of their capabilities, it's also been great to be able to marry up their Agentic capabilities in the accrual space with our mature capabilities and controls like journaling. Those 2 combined give people the confidence that these Agentic capabilities can be done safely, provide real ROI, but we also get the benefit of fast time to value from accruals and those Agentic implementations in addition to the existing mature BlackLine capabilities that we've now integrated them together with.

I appreciate that. Maybe the last one for me, just on the enterprise renewal rate ticking down slightly to 95%. Was that mainly just from the push to deals? Were there some FX headwinds in there and with those deals now closing, should we expect that to bounce back next quarter?

No, that metric, just to be clear, is not impacted by FX, the 95% renewal rate. There's a little bit of rounding there, 95% versus 96%, but we have modeled that out over the next year and we feel very confident that it will be at the mid- to upper 90s for the foreseeable future. So we feel very confident in that metric. We like where it is. And just to be clear, the slip deals would impact DBNRR but would not impact GRR or the revenue -- or the renewal rate.

Our next question comes from Tomer Zilberman of Bank of America.

Maybe I wanted to ask a similar question along the lines of the deal slippage. I think you said earlier that half of the deals that slipped in Q2 now closed in Q3. But if I look at the guidance for Q3 and the implied guide for 4Q, the results are largely in line with Street expectations. So I guess the question is, what's the timing between the closing of the deals and when you actually see them start showing up in the results? And do you think that as you continue to close the other half of the dealers that, that could provide potential upside to back half expectations this year? Or would that be more of an opportunity for 2027?

Thanks for the question. So the story there in terms of the guide for Q3 and the remainder of the year is largely FX. Back in May, when we were bridging to our original guide that we laid out at the beginning of the year in February, we calculated or identified about a $1 million to $2 million revenue headwind. Since May, based upon where FX rates were at the end of the quarter, there's about another $1 million FX headwind as a result of the strengthening of the U.S. dollar given several market factors. Our guide that we laid out in February was able to absorb that FX headwind, which is a testament to our underlying performance and what we're doing in the market.

But to your question, there is an element there that the slip deals, whether they're a month or 2 months or so, you do lose a month or 2 of revenue. But that is a subset or a minor part of the story as compared to FX. And then lastly, as these deals close throughout the remainder of 2026 in Q3, that absolutely is a tailwind for 2027 because then you get the full revenue impact next year.

I am showing no further questions at this time. I would like to now turn it back to Owen Ryan, Chief Executive Officer of BlackLine.

Thank you, operator, and thank you, everybody, for listening today. We truly appreciate your interest in BlackLine and we look forward to talking to you soon. Take care. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q1 2026 BlackLine Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Matt Humphries, SVP of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine; as well with Patrick Villanova, Chief Financial Officer. With the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine's Chief Technology Officer, join us.

Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q2 and full year 2026 and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call.

While we believe any forward-looking statements made during this call are reasonable, actual results could differ materially, and these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic report filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. All comparisons we make today on the call relate to our corresponding period of last year, unless otherwise noted. Unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or in our Form 8-K filed with the SEC today.

Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt. Good afternoon, everyone. At our AI investor session in March, we shared our technology vision in detail and made our case for why BlackLine is positioned to be the trusted governance and control layer for CFOs and deploying AI across their financial operations.

Today is about sharing with you the momentum we are building as we translate that vision into reality. Our Q1 results demonstrated that our strategy is working, delivering solid top line growth and profitability. Revenue grew to 9.7% year-over-year and non-GAAP operating margin improved to 21.6%. These results are underpinned by progress on our key strategic initiatives. The adoption of our platform, Studio 360 continues to build with the metric reaching 13% of eligible AR up from 11% in Q4. More importantly, we are seeing this strategy translate into deeper customer commitments. This is best reflected in our remaining performance obligations, or RPO, which grew 18% and driven by the longer contract terms that are inherent to our new platform strategy.

Let me go deeper into our platform strategy and commercial model. Platform adoption maintained a healthy pace following Q4 seasonality with 94% of the eligible new bookings landing on platform pricing, a strong signal that our commercial model is becoming the standard for how customers buy BlackLine. We also saw continued migration activity from existing customers in Q1. Our teams are actively engaged with customers preparing for platform conversion ahead of their upcoming renewals.

This new model is also positively changing our deal economics. Average new deal size this quarter was up 85% to $162,000 driven by platform and strategic product sales. Our standard offering now includes a broader set of capabilities on Studio 360, which naturally increases the initial land. Our platform model allows us to sell units of financial productivity rather than seeds, which, over time, we believe opens access to labor and operational budgets beyond traditional software spend. It also creates the natural expansion path for our genic AI offerings. The model works like this. As customers adopt our platform, they commit to a platform fee that provides access to the full breadth of our capabilities within a framework of governance, reliability and control that they and their auditors already trust. As they then deploy Verity agents and automate work that was previously manual, consumption-based pricing layers on top of that base, similar to how we price capabilities like matching today.

That alignment between how our customers drive efficiency and how we capture value, all within a trusted control environment is fundamental to what we are building.

When we look at the full picture, we believe that a platform that provides broad access, embedded AI driving deeper daily engagement and a genic offerings layering consumption on top meaningfully increases the lifetime value of a BlackLine customer.

This brings me to what I believe is the most important topic on today's call, AI and our Verity portfolio. Last month at our Beyond the Black Conference in London, we introduced agentic financial operations, a new operating model that defines how the office of the CFO harnesses AI safely, strategically and at scale. The response from customers, partners and the broader market has reinforced our conviction that we are addressing the right problem at the right time and with the right approach.

The opportunity is straightforward. As an enterprise deploys AI agents across their business in procurement, sales operations, accounts payable, they are creating new uncontrolled financial touch points that need to be governed. Every 1 of those AI-generated transactions eventually hits the general ledger. Everyone must be reconciled, validated and audited.

For a CFO, who personally attest to the accuracy of financial statements, that is a responsibility that requires a trusted platform. Agentic Financial Operations is designed to close this governance and trust gap. Every action in AI agent takes within BlackLine leaves a digital footprint identical to a human user, full chain of thought, immutable audit trails and bedded controls. This is what CFOs demand what audit committees rely upon and what auditors require. The market reaction from customers and partners since our London launch has been encouraging. Customers are telling us they want to leverage what we are building and provide input on our road map rather than try to build these capabilities themselves.

Their ROI framework is clear, make their finance operations more durable and competitive and let a trusted partner handle their AI infrastructure so they can focus on running their business.

Before I walk you through what Verity is delivering commercially, I want to spend a moment on how we build because the pace of our innovation is becoming a strength. We are using AI to fundamentally accelerate our own product development. Our engineering teams have adopted AI augmented coding practices across our development workflows and the results are measurable. The time from idea to production has decreased 22% versus last year. We are shipping capabilities faster with fewer resources and at a higher quality. This is a structural improvement in R&D productivity that we expect to compound over time. That increased velocity is translating directly into how we deliver value. Our customers have benefited from our foundational AI capability since last year. We are expanding further into Agentic AI.

A year ago, Verity agents were a strategic vision. Today, we have multiple purpose-built agents in market in preview are launching in the near term. Combined with our new AI innovation hub and a fully integrated AI native acquisition, we are executing against our AI road map with clear deliberate focus.

Now let me share what this engine is producing for our customers. Over the past year, we have been building and refining our embedded Verity AI capabilities like Verity Assist, Verity Narrate and Verity Flag and close collaboration with our customers, their auditors and our partners. That feedback loop has been critical, allowing us to validate not just performance, but the trust and governance bring work around them.

Even before we brought in access, adoption among early users was doubling every quarter. In Q1, with that validation in hand, we made these capabilities standard across most of our customer base. Over 2/3 of our customers are now actively using these tools, a 285% increase in adoption quarter-over-quarter. In Q1 alone, unique users grew 68% and total usage grew 183%. What this tells us is that AI is moving beyond experimentation for our customers and into their day-to-day workflows. As they embed these capabilities into how they operate, it deepens their relationship with BlackLine. Over time, we expect that to support both stronger retention and additional consumption under our platform pricing model.

Verity Prepare, our AI-powered reconciliation agent is now available to customers and is deployed with several mega enterprise customers. The validated outcomes customers are seeing are significant, over 90% reduction in reconciliation processing time. One customer that had been spending 3 hours manually executing certain reconciliations as seen that fall to 10 minutes and 95% time savings. Based on their experience, they are now ready to enable Verity prepare broadly across their business. That progression from pilot to enterprise-wide rollout is exactly the adoption pattern we are building toward. Early usage data shows the cost to serve as efficient at current scale with clear paths to optimize further as adoption grows. Our multi-model architecture allows us to deliver meaningful customer value at margins consistent with our financial targets.

Verity Match is now in its early adopter phase. Our existing matching solution is a powerful capability as it handles high-volume, complex data sets across multiple ERPs and source systems and deliver strong automation rates for our customers.

Verity Match builds on that foundation by applying AI to the long tail of complex exceptions like combined vendor payments, transposed invoice numbers, missing remittance details. Rules-based systems have historically left these for accountants to resolve manually. In early customer testing, we see a 64% reduction in transactions requiring manual investigation. And by running our models on NVIDIA GPUs, we can process matches up to 25x more cost efficiently and faster than on prior architectures, improving both the customer experience and unit economics as this scales.

Verity Collect will launch this quarter and the demand signal has been stronger than expected. We had to close our early adopter program because customer demand exceeded our planned capacity. The value proposition is direct. Predicting payment delinquency before an invoice becomes past due and autonomously managing the collections outreach across voice, e-mail and digital channels.

For CFOs, this translates directly to working capital improvement, which in the current macro environment is a top priority. While it is still early, we believe the initial proof points are compelling in 1 early adopter scenario our AI agent completed collections outreach activities in under 30 minutes that would have taken a human team of approximately 45 hours. That kind of efficiency gain, freeing collection teams to focus on high-value accounts and complex disputes is exactly what is driving the demand we are seeing. We expect Verity Collect to be a meaningful accelerant to our broader invoice to cash momentum as it scales.

Verity Accruals has seen a significant acceleration in customer interest and pipeline growth as its value proposition resonates in the market anchored by initial successes including closed deals and proof of concepts with key targets in both the enterprise and mid-market. These are largely existing customers looking to expand their footprint, which validates the cross-sell motion we have been building. Customers land on Studio 360 and then adopt additional Verity agents as they see results. One advantage worth highlighting is that our customers do not need to build a new governance framework to deploy Verity. BlackLine already is that framework. Verity agents operate within the same SOX compliant controls, audit trails and approval workflows our customers have relied on for years. Customers can begin deploying AI within a controlled environment today and their auditors already trust, which we believe lowers the barrier to adoption and supports a faster path from pilot to broader rollout.

Turning to how this strategy aligns with our Q1 execution, our platform and AI approach is showing consistent progress in the enterprise. This sustained focus is reflected in our metrics. First, we saw an increase in customers with over $1 million in ARR. We closed the first quarter with 86 customers at this level, an increase of 9% year-over-year along 14% growth in our $250,000-plus customer cohort.

Second, this strategy is driving deeper adoption and additional cross-sell across our portfolio. Our strategic products represented 37% of sales in Q1, up from 33% last quarter and 27% in the prior year. This proves that when we lead with value and outcomes, customers invest more deeply in BlackLine, adopting more solutions with less friction.

And third, you can see the strategy and action and key wins from the quarter. Within our existing customer base, we saw a significant validation for our AI offerings, particularly Verity Accruals. We secured a major renewal and expansion with a leading billing company, demonstrating their deep loyalty to BlackLine and strong interest in our AI capabilities. We saw similar momentum with a leading global mobility and car sharing company, which also expanded its footprint with a strategic win for variety accruals. Our upmarket motion and governance thesis also continues to resonate strongly in highly regulated and complex environments. This quarter, we welcomed 1 of the nation's largest health care providers as a new logo replacing an ERP competitor, which is a powerful validation of our trusted control framework and innovation. We also saw significant expansion within our enterprise base, including a premier global construction services company that added our invoice to cash solution. Additionally, we executed a major rip and replace at a leading fintech provider, successfully displacing multiple competitors to consolidate their financial operations on to BlackLine, adopting Studio 360, Journals, reconciliations and Transaction Matching.

Last, we delivered highly strategic wins, particularly among companies at the forefront of the AI revolution. We secured a net new agreement with a global leader in memory and data storage for AI, successfully migrating their processes of an ERP competitor and on to BlackLine. Through that same channel, we also expanded our footprint with 1 of the world's premier data and AI platform companies. The fact that organizations building the future of AI rely on BlackLine for their own financial governance speaks to the strength and trust of our platform. We believe our customer base is healthier than our headline retention metrics suggest and it is getting stronger. The lower mid-market churn we have discussed in prior quarters is running through a finite and shrinking pool of at-risk accounts.

At the same time, the changes we have made platform pricing that creates stickier customer relationships, a broader solution footprint per customer, increasing multiyear renewal commitments and a redesigned customer success model are fundamentally improving the quality of our installed base. We expect the cumulative effect of these changes to become more visible in our retention metrics as we move throughout the year and into next.

Finally, our partner ecosystem and our SAP relationship continue to be meaningful contributors to growth. Our integration with SAP's advanced financial close is now generating pipeline as we were able to sell into SAP's installed base of ASC customers. Our Joule, Verity proof of concept is also progressing toward a commercial framework, and we are actively working to launch platform pricing within SolEx. We are also seeing acceleration in our public sector business through SAP with several active deals in the pipeline. We see our partner ecosystem as a force multiplier across demand generation, delivery and customer success and is critical to scaling our growth.

In closing, our path forward is clear. AI is creating more financial activity across the enterprise, not less. All of it must be governed, reconciled and audited. We are the system of record and control that makes this possible. Our customers are telling us they want to move fast with AI, but they also tell us that trust, reliability and security are nonnegotiables. This is exactly what 25 years of BlackLine expertise delivers.

With that, let me turn it over to Patrick for a detailed review of our financial results and our guidance.

Thank you, Owen. As discussed, our strategy is building clear momentum, and our Q1 financial results reflect that progress. We delivered solid top line growth, demonstrate the quality and durability of that growth through our key strategic metrics and showed significant leverage in our operating model.

Let me walk you through the details. Total revenue was $183 million, up 10% and with subscription revenue growing 10% and service revenue growing 11%. The acceleration in services reflects the faster implementation time lines and go-live activity we are driving through our delivery engine.

ARR reached $712 million, up 9%, reflecting the bookings momentum we saw in Q4, carrying forward and continued strength in platform and strategic product adoption.

Importantly, we believe the quality and predictability of our future revenue growth is strengthening. This is best illustrated by our RPO, which grew 18% to $1.1 billion fueled by larger deal sizes and longer contract terms inherent to our platform model.

Similarly, the health of our near-term pipeline is also reflected in our current RPO growth of 12%. We which underscores the solid market demand for our solutions. This momentum is directly linked to the steady adoption of platform pricing, which reached 13% of ARR at quarter end, up from 11% in Q4.

Calculated billings growth was 9% in the quarter, our trailing 12-month billings growth, which helps normalize for quarterly variations, improved to 9%.

Turning to the health of our customer base. Our key metrics remained solid across our 4,300 customers. Net revenue retention was 105%, which includes an approximate 1 point headwind from FX. Underlying expansion within our installed base remains solid, driven by 2 dynamics: customers migrating to platform pricing, which naturally expands the scope of their relationship with us and strong attach rates for our strategic products, which represented 37% of sales this quarter. Customers are investing more broadly in BlackLine and our platform model is making that expansion easier and faster.

On retention, our revenue renewal rate was 93%. Enterprise renewal rates remained strong at 96%, consistent with the durability we have seen in this segment, the lower mid-market headwind we have discussed in prior quarters continue to weigh on the overall rate, though the remaining at-risk pool is finite and shrinking. We expect this drag to diminish as we move through the year.

Our SolEx channel delivered 1 of its strongest new bookings quarters as our joint go-to-market with SAP continues to mature. SAP customers now account for over 26% of our total revenue, and we see further opportunity ahead as our broader platform strategy opens new avenues into SAP's installed base of commercial and public sector customers.

Now let me turn to profitability and cash flow. Our non-GAAP subscription gross margin improved to 83%. Our non-GAAP gross margin improved to 80.2%, in line with our expectations.

Non-GAAP operating margin was 21.6%, reflecting the continued productivity improvements we are driving across the business. We are seeing meaningful efficiency gains from our own adoption of AI and automation in areas like customer onboarding, implementation delivery and internal operations. This enables us to grow revenue faster than expenses while maintaining our investment in innovation.

Non-GAAP net income attributable to BlackLine was $40 million, representing a 22% non-GAAP net income margin with adjusted earnings per share growing 14% to $0.56. We delivered operating cash flow of $46 million and free cash flow of $36 million or a 20% free cash flow margin. After paying off our 2026 convertible notes in March, we have approximately $525 million in cash, cash equivalents and marketable securities versus $667 million in debt.

Finally, we continue to execute our capital allocation strategy. In the quarter, we returned approximately $47 million to shareholders through the purchase of 1.2 million shares.

Before I get into guidance, I want to step back and frame where we are against our multiyear financial targets. We entered the year with a clear objective continue accelerating revenue growth toward double digits, expand operating margin and do both while increasing our pace of innovation.

Q1 demonstrated progress on all 3 fronts. Revenue growth accelerated, margins expanded and the pace of our product delivery has never been faster. These results give us confidence to raise our full year outlook.

On the specifics, I want to call out a few dynamics that are important for modeling purposes. The first quarter's top line performance included about a $1 million benefit from certain items related to specific customer deployments and timing. These are nonrecurring in nature.

Looking ahead, we anticipate a modest revenue headwind of roughly $1 million to $2 million over the balance of the year due to FX. After accounting for both of these dynamics, our Q2 and full year guidance reflect continued acceleration in our underlying revenue growth rate as we move through the year.

On the macro, we are not immune to the external environment, and we have built our guidance with that in mind.

That said, the financial close is a regulatory obligation, not a discretionary spend item. Our customers cannot defer compliance and the complexity of their financial operations is increasing, not decreasing. Combined with our growing RPO strong multiyear renewal trends and an expanding enterprise pipeline, we have good visibility into the rest of the year. Our raised guidance reflects both that visibility at an appropriate level of prudence given the uncertainty in the broader environment.

With that context, for the second quarter, we expect total GAAP revenue to be in the range of $186 million to $188 million, representing 8.1% to 9.3% growth. We expect non-GAAP operating margin to be in the range of 21.5% to 22.5%, and we expect non-GAAP net income attributable to BlackLine to be in a range of $40 million to $42 million, or $0.57 to $0.59 on a per share basis. Our share count is expected to be about 73.3 million diluted weighted average shares. And for the full year 2026, we expect total GAAP revenue to be in the range of $765 million to $769 million, representing 9.2% to 9.8% growth. We expect non-GAAP operating margin to be in the range of 24% to 24.5%. And finally, we expect our non-GAAP net income attributable to BlackLine to be $174 million to $182 million, or $2.42 to $2.53 on a per share basis. Our share count is expected to be 74.4 million diluted weighted average shares.

Operator, We're ready for questions.

[Operator Instructions] And our first question comes from Alex Sklar of Raymond James.

Great. Owen, maybe first for you on Verity and some of the adoption you've seen there. You spoke to it being a big factor in the majority of the large deals in the last 2 quarters you seeing in terms of adoption and usage from spend new customer cohorts, specifically as they've gone live on BlackLine? And Patrick, maybe can you remind us if there's any consumption revenue embedded in the 2026 outlook?

Yes, Alex, first of all, good to hear from you. Thanks for the question. I think whether it's a new customer or even an existing customer, things that we're hearing from our from that cohort is basically. One is they want to move at a good pace with AI, move a little bit faster. But what they're also telling us is that they do not want to compromise anything on trust and governance. And so what they're trying to figure out with us when we go in and talk with them is they first tell us that the AI that we're rolling out needs to work within an existing controls environment, which is what we have and what they really appreciate. They want to make sure that the AI that they're deploying has actually been built by people in the business that understand their business. So they're not necessarily enamored with sort of generic AI. And so when we sit there and we can talk about the hundreds of billions of transactions that we processed over for all of our customers over all these years and can show the accuracy and effectiveness and efficiency with which that works and then the ability for their auditors to know and rely on it and trust it. That all becomes really important in all of the conversation.

And the last thing that we hear from them, Alex, it's not like what we bought today on February 25, and is the end all be all. So what they're really looking for is also trying to understand what is our road map? How does it align to their interest? And then how can they potentially weigh in with others in their industry to sort of move forward. And 1 of the examples of a big win we had this quarter was with a very, very large health care company. Well, if you look at the largest health care companies in the United States, we probably have 9 out of the 10 at this point in time. And so bringing that cohort together to show that experience because they all have those common issues and they're all trying to figure out how to use AI the right way in that environment. So those are the things that we sort of really hear. It's like yes, we wanted to be cutting edge, but more importantly or just as importantly, they want to be able to trust it. They want to make sure it's accurate. It's auditable, reliable and secure. And then emerging probably after the quarter, but there's a lot more conversation now about the total cost of ownership and cost certainty, because what's happening with AI and other parts of the market where people are consuming tokens at a very, very high level without really understanding what they're getting from an ROI perspective. That's what I'm seeing in those conversations.

But Patrick, over to you.

Yes, Alex, to answer the second part of your question, just to hit the nail on the head, there is a nominal amount of consumption revenue included in the 2026 guide for the remainder of the year.

Now with that said, you should start to see that in our leading indicators. The reason for that -- for all the reasons that Owen just said, our customers right now are uptaking these Agentic offerings as well as other AI offerings, testing them out, getting comfortable with them, increasing consumption. As they move up through the consumption tiers, we expect to see that show up in our leading indicators, which materializes in revenue in 2027. And the way we're seeing it now, the pace that we're at, we can reassert that at least 50% of our ARR exiting 2026 will be non-seat-based as a result of everything that we just discussed.

Okay. That's great color from both there. I appreciate that. Maybe just a follow-up on the strategic product bookings mix. I think that's a new record, can you just talk about the commonality you saw in terms of solution adoption? And then I heard faster adoption of strategic products for those customers under platform pricing. Can you elaborate what you're seeing there with the 13% of the base now on platform? How much of an unlocked that is?

So I think, Alex, just -- and I want to make sure I understood your question, which was what's driving the strategic product sales into the platform. And I mean, basically, it's the work that Jeremy and his team are doing with Stuart and his team to sort of make sure that the whole system works together seamlessly that can be implemented by our partners. Our teams are sometimes jointly with our customers who are able to demonstrate faster time to value for what they're being -- what they're asking for. And then I think importantly, as we continue to innovate in those products, we're widening the gap, quite frankly, with anybody that would have been a competitor. So those are the things that I think we're seeing in the market so far. And hopefully, that was responsive to your question, Alex.

Great.

Patrick, do you want to talk about the acceleration of 11% to 13%?

Yes, Alex, the second part of your question there, I think what I heard was, does our continual increase in the strategic product mix is that derivative of our platform approach. And the short answer is, yes, they are related. We would expect to see a continued increase in mix of our strategic products versus nonstrategic because most, if not all of our strategic products are consumption based.

Now the second part of that, as customers migrate to our platform, that enables a smoother sales motion of our strategic products. It is a connective tissue, connected fiber between all of our solutions, which allows data to flow seamlessly between them, and that allows us to sell into that customer base with less obstacles. So as we see more and more customers move to the platform, we would expect to see that mix of strategic products continue to increase as well.

Our next question comes from Chris Quintero of Morgan Stanley.

I want to ask about RPO, a really nice growth rate to see there. And at a time when there's so much innovation going on in the space. I'm curious from your perspective at a high level, why are customers existing and you like making these such deep longer-term commitments and really tying themselves to the BlackLine story and product road map here?

Yes. Look, I think, Chris, it's sort of what I just said at the beginning, right? So we've been -- we're in our 25th anniversary, actually officially June 2 for those who are paying attention to that. But I think it's when you've been a trusted partner for the world's leading companies for as long as we have been, there's a lot of safety and security and you think about the profile of our customer that buy. So there is a confidence in that. And then when you sit there and you think about the way BlackLine innovates amongst and between our customer base, our partners, staying close to what the auditors are requiring, what BPOs are trying to do. You bring all that together and you have that much more of a collaborative effort. That's why we announced the innovation hub that we said we were putting out, I guess, about a month ago, we announced that. But all of that is sort of giving them a high degree of confidence about what it is that we're doing. And again, I think we're hearing more and more frequently. We don't want to have to build this ourselves. We'd rather partner with a company like BlackLine. And so you're seeing that longer commitment because these things are not 1 year 1 and done kind of activities. The rollout, the building of AI isn't going to stop 12, 18, 24 months in the future. And so you're seeing a lot of that from a commitment perspective, as to our customers wanting to just partner and go on that journey with us. But Patrick, anything you'd add to that?

Yes, Chris, for all the reasons Owen just said, our RPO story is a very good story right now. Delivering 18% overall RPO growth, 12% CRPO growth year-over-year. It's indicative that our customers or new customers that we're landing, they're larger in nature. They're signing up for longer terms right out of the gates. And then coupling that with our existing customers that have been with us for years, they're coming up for renewal and they want to be with us for several more years. They want to continue the journey. They're intrigued by the innovation. They want to be part of this, so they want to partner with us. And per se go at it alone. So it's a very positive story underpinning our RPO growth rate and it's indicative that our existing and new customers want to be with us for several more years.

Excellent. Super helpful. And then I want to follow up on Verity. Within that early customer cohort that you have adopting the product. What are you seeing from a transaction volume perspective for those customers that are adopting it? And how does that compare versus customers that haven't quite gone there yet?

Jeremy, you want to take that question?

Yes. I think we are definitely seeing repeat engagement from customers using Verity. So that's extremely promising. And with the customers that are doing this, Owen mentioned the 90% time savings in things like preparations activities, that's really what's driving the repeat usage of these capabilities, the value being delivered. And so in the cohort, we definitely see people who are using very come back to use Verity again. for risk analysis, for narration capabilities for other analyses. And so that's what's really driving the usage and the transactions from these customers.

And our next question comes from Patrick Walravens of Citizens.

Great. Congratulations you guys on the progress here. Owen I would love to talk a little bit more about SAP, in particular, when you talk about the public sector opportunity with SAP, there's a couple of things there. I mean, I guess I don't usually think about the public sector and BlackLine because the public sector has kind of different accounting. And then secondly, I did notice that 1 of your SolEx salespeople moved to SAP focusing on the public sector recently, so I figured there's some connection there. But I'd just love to hear your thoughts.

Yes. So first of all, the relationship with SAP, in my view, just continues to get stronger and better. I think the collaboration around product road map, customer success work that we're doing around AI together are all things that, from my vantage point, I just -- I couldn't be more pleased with that. Obviously, we all wanted to go faster, but that's just par for the course. But I will say to you, 1 of the privileges of working with SAP is they're very professional and they're very thorough in what they do. And so sometimes, you might give up a little bit of speed for that professionalism and the thoroughness with which it's done, but it works particularly well. As it relates to public sector. I think we've been signaling now for a couple of years, our move to becoming an IL-2 compliant than IL-4. We've had some wins now in the public sector space. We are going to continue to invest in. We've had a very nice growing pipeline of opportunities with various federal agencies. Those in many ways, is a bit of a tailwind for us in the sense that the government is trying to modernize. And Pat, if you're as a taxpayer, I'm going to say this, the government really has a hard time producing any kind of audited financial statements. And so no matter the basis of accounting, you still have to get it right. And so that's where we've been able to find a real opportunity to grow into that organization. And so yes, so we're excited about that opportunity.

Okay. Are there any really big deals in the pipeline on this?

There's always big deals, Pat. I got to just get them across the finish line. The government spends big when they spend. But they have their killing season, as you know. So that's not until the end of the third quarter.

And our next question comes from George Kurosawa of Citi.

I'm On for Steve Enders. Maybe you could talk about this move that you discussed on the Verity side from POCs into more scaled enterprise production. How hands-on is that transition process? Is there a component of or deployed engineers or some similar construct that's required here? How turnkey is it? Maybe you could talk about what the learnings have been in customers making that migration?

Yes. So I can take that question. So in terms of adoption, obviously, with the earlier capabilities and in the agent capability, we've been fairly hands-on with our customers. But we've always had a forward deployed engineered style motion in terms of how we've used custom customer engineering resources to customize solutions to customize goal entry capabilities to fit the needs of businesses. And so we're taking the same hands-on approach with the earliest cohort customers adopting these agentive capabilities, but we are set up well to expand this to a forward deployed engineer motion in the future based on what we already do today with our customers.

Okay. Great. And then I did want to touch on the platform pricing cadence here. I apologize if I missed this earlier in the call, but I think if it was a 7% increase in percent of ARR in Q4 and in Q1. I'm sure this is going to be a bit of a lumpy metric. I'm just wondering if you could just comment maybe there's some seasonality, just the number of app bats you had and just the dynamics under the hood there and your confidence in doubling the ARR on that pricing model.

Yes. Thank you. We're very confident that we're going to reach 25-plus percent by the end of the year in terms of the amount of eligible ARR we have on the platform model. With that said, you hit the nail on the head. Our largest renewal cohorts are in Q2 and Q4, and Q1 is by far the lightest. So we did not expect it to be a linear path from 11 to 25-plus percent by the end of the year, and we're right where we thought we'd be coming out of what is traditionally a lighter quarter in this industry.

And our next question comes from Matt VanVliet of Cantor.

Maybe a follow-up on the SolEx partnership and then kind of a broader question on the overall go-to-market side I think coming into the year or beyond the black last year, you talked about maybe greater alignment with senior executives at SAP. Curious how much of that is sort of already coming through the pipeline versus being maybe a little bit back half weighted just given the seasonality of that business. And then wrapped around that, just sort of the execution that Stuart had talked about coming in to have more accountability on sort of a daily basis. How is that playing out on both sides of the SolEx and the rest of the go-to-market team?

Yes. A couple of things. So I'll say again, I think we're very pleased with the progress we're making in trying to team with SAP. As I think you know, I think they report something like their second and fourth quarter, they're very large, and I think 40% of their bookings come in the fourth quarter. So there is a bit of a tail to this, but you're not buying a big ERP systems for the moment the sales cycles are even longer than ours, as I understand it. But there's great alignment. The teams are working really well. I think you would see it in presales, the incentives are aligned the right way. And there's just more and more success stories that are being created amongst and between SAP system integrators, BlackLine and customers. And so those stories become very compelling when you hear them together because when you're spending the kind of money you have to do an ERP upgrade and then implement BlackLine, you want to make sure the is there. So I feel very, very good about that. I think the -- you look at the work that Stuart is driving on behalf of our team, I think it's going well. I think the 1 thing that we're learning from our own experience as our deal sizes get larger, there's a few more people around the table and making or that we understand the different constituencies. So would be a place that a year ago, we're not necessarily as much of a focus for us. We're having to spend more time with CIOs. Some companies now have the equivalent of a and AIs are. And so we're having to sort of learn how to work with some of that. And then obviously, the deal sizes are bigger. So they're just takes a little bit longer to work your way through that. But I think Stuart is the right guy doing the right things with this team to drive the success that we want. So I feel quite good about that.

All right, helpful. And then as you look at customers that are already on the platform pricing or maybe on the next list to potentially migrate over to that, is there any different margin structure that you're assuming in sort of year 1, year 2 of those deals that ultimately sort of maybe builds back up? Or how do those -- how does that pricing around both the usage of the platform, but also kind of encompassing the size of the organization and the complexity there, have a margin profile that maybe differs from the seat-based model?

Yes. So as we just talked about, we're about 13% of our way through. We look at our customer cohorts very carefully that are coming up for renewal in terms of who's eligible for the platform. in terms of what customers are most likely to adopt and then which customers are going to consume the platform and at what rate. We've been looking at data for the last year. And early on, but right now, we are not seeing any margin compression as a result of adopting the platform. The cost of delivery on day 1 is not that significant. And so we see the immediate uplift and then we're now monitoring the secondary element of the revenue generation of the platform, which is consumption. So far, based upon what we're seeing, we are not seeing margin compression. In fact, I believe if you see in Q1, we had our highest gross margin in years, and that was as planned. That's part of our migration completion to GCP. We still had some redundancy in data centers in Q1. And for the time being, we expect gross margin to expand throughout the year, and we're not seeing any data points that are contrary to that. But we will continue to closely monitor the impact of AI.

Our next question comes from Daniel Jester of BMO Capital Markets.

This is Kyle Aberasturi on for Dan Jester. It sounded like a solid quarter for both Verity and for platform deals. I guess just how do you see customers allocating resources between pure AI products and more broader digital transformation trends?

So I would say our customers are not just looking at buy AI for the sake of AI. I mean I think for our customer base, it's about being part of digital financial transformation journey that happens to have more power being provided because of AI, but people are just not buying cream without wanting the cake, if you will. So there's got to be a real foundation underneath all of this is as we move forward. And so I think that continuing to underline everything will be the complete platform cross record to report or invoice to cash then further powered by what the AI capabilities that Jeremy and the team are building. That's my experience with the market right now, but I'm going to -- I'm looking at both my other presenters here and seeing if they're hearing anything different from our teams in the field.

Yes. I think overall, AI, there's excitement about our road map and vision but it needs to tie to their overall objectives as an organization. And so it's really in support of the transformation objectives. BlackLine has always supported and accelerated. And AI is an accelerant to that. It enables that to happen more quickly and with less resources on their side. But ultimately, it ties to the transformation objectives we are already part of.

I think, Jeremy, so it ties to being able to fit into the control environment as well, right? Our customers need to understand that there's not going to be anything introduced into the control structure that's going to create an issue for them.

Okay. Great. And just a quick follow-up. The Middle East was an area of investment last year. I guess, just has there been any impact today hitting the business?

As they like to say timing and life is everything, right? So we -- as for those of you who don't know, really sort of opened up operations at the tail end of last year in Saudi Arabia. We had our first nice win in February, if I remember correctly. And then obviously, the war broke out in Iran at the end of February. So it has had an impact on the environment in the Middle East. We didn't have lots of big numbers built into our financial plan for this year. I think saying that Patrick and the team and I are watching very closely is the impact on Europe. That's the 1 area where we saw some slowdown at the end of the quarter that we're watching to see if there's going to be much more of an impact in that part of the world. as the troubles in the Middle East continue to unfold.

And our next question comes from Rob Oliver of Baird.

Great. You guys hosted a really cool AI event this quarter and some longtime customers that we've talked to over the years like Quest and others like Bristol-Myers were there. And as you talk about the usage ramp and Verity, maybe provide for us a sense or an update for -- as you think about the outlook for this year and the next couple of years, how that Verity usage ramps as you move towards your 27 targets. Within that call, it was fascinating because 1 of the customers was like, yes, we're all in on it. The other was like we're still dabbling. So just would love to get some more color around the customers that know you and love you, what they're doing with the AI components of the platform.

Yes. Rob, first of all, good to hear your voice, and thanks for the question. And these we have customers that run every end of the spectrum, right? So -- and whether they love it or not, there's still some governance that these companies have in place and how quickly they want to evolve with partly just to their own ability to digest it, part of it, just making sure that every Ts crossed every I is dotted as they move through the alphabet, if you will. And so the thing that we saw out of the first quarter again, which was important from my vantage point, as we may have taken longer to get everything into the market. But when it went, we had very, very high confidence that it was going to work. It was reliable, as trusted because our customers have already kicked the tires as many times as they possibly could. The auditors that sort of I won't use the word blessed, but had a high degree of confidence in it. And so I think that's the approach that we're going to continue to see. There's going to be some customers that army and his team want to experiment with us. And I guess maybe the way I would sort of describe it is, we've got customers that want to ride into Peloton, some of them want to be at the front of the Peloton. Some of them want to be at the back of the Peloton. They don't want to be in Group 2, right? So they don't want to have fallen away from the pack, but they're sorted some of them on a drift for a little bit of time just to see how things are unfolding. And I think 1 of the things that we are trying to do is take advantage of our industry capabilities and get some of these customers to talk to 1 another, that they're in the same industry sector so that they get a higher degree of confidence of what's being used, how it's being used and why they can rely on.

But Jeremy, please add.

That's also part of why we launched that AI hub. The -- Owen alluded to the fact that we have some customers who really want to be designed partners with us. and want to think about be forward leaning about how they expand usage of AI into their organizations, but also how they define it for finance and account discipline as a whole. And so that's really what the intent behind that hub and builds upon our narrative from our AI day, but it's really about pushing the envelope with these customers in a safe, governed and trustworthy manner and being able to design together with them as part of what the leaders in these spaces are looking to.

And our next question comes from Patrick O'Neill of Wolfe research.

Just a quick 1 for me. I wanted to ask about the mid-market churn? And maybe can you quantify the growth headwind attributed to that churn, both in the results and then maybe what's factored in the guidance? And then when that does subside, it sounds like towards the end of this year, how should we think about the potential for net retention to expand as we look into next year and beyond?

Yes, Patrick. So a couple of data points there. No surprises in terms of where we're going or the results from a customer account perspective. we've been signaling for well over a year now that there's going to be churn in the lower bid market. and we expect that to slow down in the second half of this year. We're tracking that cohort very carefully and feel very confident that, that number will trend down from a customer churn count perspective as this year evolves. It's a good data point to note that it is a headwind for lack of a return that we've baked into the guide. There's no surprises there. We've baked it into the plan. We saw this coming. For every customer that we land, the average customer size for new logo is over 3x the size of a customer we lose. So that gives you -- that's a very key data point, not just in terms of our success of the nature and size of customers that we're landing and landing on the platform, but it also is a good indicator in terms of the general size and nature of the customers that are leaving us. So as the year evolves, we would expect some expansion on DBNRR as well as GRR as we work through that cohort and enter 2027.

And our next question comes from Billy Fitzsimmons of Piper Sandler.

I want to double click, I was going to ask about kind of the demand environment outside of North America and the opportunity there came up in 1 of the prior questions. And in the answer, there was a commentary kind of around Europe and some of the macro impacts there that -- can we please double-click on that? What was kind of the impact there, if any, in 1Q? And what are you kind of seeing positive or negative in 2Q since that because it's come up in investor conversations about the potential for maybe elevated push up relative to other geos?

So first of all, broadly, pipeline in the business continues to grow at a very healthy pace all around the globe. So we're not really seeing a significant difference between 1 geography versus the other. And so that for what we are trying to do in the marketplace. That said, as we said, the end of March was a little bit less than we would have expected. And so some pretty large deals did get pushed out. I would say to you that business throughout North America looks very solid. Asia Pac, there's parts of that look really good. So for Japan, it seems to be doing well for us. And then Europe is okay. I think the thing that I worry more about than the war because that doesn't work its way through when businesses still need to implement BlackLine as we move forward is the tension -- the geopolitical tensions between the U.S. and Europe and what that might mean for us for infrastructure we have to build in Europe compared to what we have in North America now. So I know Patrick and Jeremy have been sort of modeling that out. If data sovereignty becomes a bigger, more pressing issue, then we're ready to deal with it. We know how to do it. We just obviously built something in Saudi Arabia. But that is the 1 thing that I am watching. I think we can work our way through the macroeconomics pretty well. But I want to make sure we also don't lose sight of is the geopolitical issues that could have an impact on investments we would need to make in the business maybe later this year or to '27 or '28.

Super helpful. Glad to hear about some of the momentum at specific geos like Japan.

Our next question comes from Adam Hotchkiss of Goldman Sachs.

Patrick, I just wanted to start with you. I think you mentioned the $1 million nonrecurring benefit to Q1. Could you just maybe help us understand that a little bit better what that was and why that's not recurring?

Yes, Adam, it has a little bit to do with the timing of implementations, the timing of delivery, it's onetime in nature. But I think, Adam, the key takeaway is even though we had $1 million of onetime benefits in Q1 from a top line perspective, we're passing along all of that into the guide less FX headwinds. So overall, we did not view it as a headwind to the update and increase of the guide for the full year. And of the $2.1 million beat, we're passing about half of that into the full year guide. The other half being an FX headwind from where rates were at the time we established the guide for the year.

Okay. Yes, that's helpful color, Patrick. And then, Owen, just any updated thoughts on win rates or the broader competitive environment? I know way down market, there are some AI native full-stack ERPs that are getting a lot of funding that are probably serving companies nowhere near the size of where you are. But curious, just broadly for the enterprise players and sort of where you stand, how that's going?

Yes, I'm going to say this, and I'm probably going to regret it in some ways, but it feels to us like our ability to compete at the enterprise, we've distinguished ourselves even more from our traditional competitor set. I think the robustness of which Germany has built, the completeness of the road map, the work that we've been able to do to improve time to value, provide more certainty around cost of ownership, continuing to be viewed as a very collaborative player as to what we do has been good to see in the enterprise space. And you can see that in our pipeline as it's growing. The number of opportunities isn't necessarily growing very large, but the dollar size is increasing nicely, and that's in the enterprise space, and we're pretty encouraged by the number of 7-figure deals that we have in front of us for this year and next year.

I'm showing no further questions at this time. I'd like to turn it back to BlackLine's CEO, Owen Ryan, for closing remarks.

Thank you, and thank you all for taking the time to listen to our call today and to ask questions about our company. We appreciate your interest in us, and we look forward to catching up and talking more soon. Thanks, everybody. Have a great night.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

All right. Let's go ahead and get started here. Thank you, everyone, for joining. My name is Chris Quintero. I am the office of the CFO software analyst here at Morgan Stanley. And really excited to be joined by the BlackLine team here. We've got Owen Ryan, CEO; and Patrick Villanova, CFO. Thanks for being here, guys.

Thank you.

Thank you.

For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

So Owen, Patrick, maybe for the investors that are less familiar with the BlackLine story, give us a quick overview of the business. What are some of your core products, your core customers?

Okay. So our core products are really financial closing consolidation and then invoice to cash. And that's all run on a platform called Studio360. We've been in business, it will be 25 years this year, shocking. We serve 70% of the Fortune 100 and about 60% of the Fortune 500. And if you go to any major capital market around the world, we tend to have about half of the publicly traded companies that are in those markets, the larger ones in particular. We continue to focus on growing mostly through organic activities. And most of our innovation really comes through the voice of our customers, our SI partners, the BPOs who tend to run BlackLine in a back-office way and then the auditing firms because what we do matters to all 4 of those constituencies as we move forward.

Got it. That's a helpful overview. Let's jump right into AI. Clearly, a lot of investors are concerned about the terminal risk for a lot of software vendors. So from the BlackLine perspective, what do you view as your competitive moat, your key defensibility against some of these AI start-ups, large language model risk here?

If you've got 20 minutes, so I can give you the answer to all of this. Look, I think -- and we're doing a special day in 2 weeks for our investors and the analysts because they wanted to understand at a deeper level what's different about BlackLine versus maybe a marketing company or something like that. So we start with first is BlackLine is a mission-critical system for our customers. We've got about $60 trillion of market cap runs through BlackLine every day, not an insignificant number by any stretch. But people talk about being a system of record. Yes, we are that. But maybe even more importantly, we're a system of control for our customers, which you cannot underestimate.

We tend to do all our work through about 20-plus years, as we mentioned, the proprietary data that helps inform the decisions that our customers make. As Patrick will tell you, we live in a world of complete precision. Some people want to talk about deterministic versus probabilistic. All I know is we need to be 100% right. And that's really critical to our customers. Why does that matter? Because as a CEO, I sign a rep letter every quarter that says my financial statements are completely 100% right. My CFO does the same thing and the controller. You take on a tremendous personal financial liability, if anything is not correct. And so that's a big piece of reliability that matters for our customers. We've got 20-plus years of auditor trust and reliability.

One of the things most people don't understand is many audits are conducted where our customers give the auditors licenses to use BlackLine in conducting of a financial statement audit. We've built the platform to be more extensible and configurable based upon feedback from customers in the last couple of years that allow them to do what they need to do to sort of get the reporting and information out that they're looking for. We've embedded AI pretty much across the platform in all of our solutions. We've been rolling that out in the marketplace, had some really good nice uptake in the fourth quarter, and that continues so far in the beginning of the year.

And then you just get into sort of simple math, and I give an example of -- we have a customer that joins us last year. They got $65 billion of revenue. They pay BlackLine $0.5 million as a customer. And somebody walks in and says, well, we could do that for $300,000 or whatever and name your price. Well, okay, do you want to give up all the system security, reliability, the accuracy, the brand, the trust? We are both like an insurance policy and insurance policy for our customers and a CFO pretty quickly goes, yes, we're not going to mess with that no matter what a CIO might say that he or she can do pretty quickly. So I can keep going on and on and on, Chris, but I think we feel very comfortable and confident that we have the right people doing the right things based upon what our customers, partners, BPOs and auditors expect and want and have come to trust and rely on in the marketplace. And that makes us very different and unique than other companies in the office of the CFO.

Yes. So a really critical -- mission-critical system. You need to have the 100% accuracy, the auditability, the risk compliance, all that stuff needs -- is a must-have for your customers. Let's talk about the opportunity front for AI. How are you all bringing AI capabilities to your customers? Maybe talk a little bit about Verity and that launch and how it's going.

Yes. And we'll tag team on it. I mean, obviously, we've been working on AI for a number of years. Therese, our founder, she would sit up here on stage with me the last couple of years and talk about if there's a company with 20,000 accountants, I want to take out 18,000 of them, probably not the nicest way to sort of communicate that, but that was sort of the messaging. And so we've been on that journey. And we see that in the productivity from our customers over the last couple of years. It's why we've been moving so quickly to get away from sort of a user-based model to a consumption-based model because that attrition based on the way customers were using BlackLine more effectively.

What's been interesting is when AI started to really get sort of mind share, we were very quick, we believe, to sort of try to figure out how to begin to embed that both from a generative perspective into our solutions. And so we've done that. We released a number of things over the last year or so, but then maybe the most critical thing was then moving into agentic capabilities, which we announced in the fourth quarter of last year.

We've got some really big enterprises that are using some of our agentic capabilities, for example, around Verity Prepare, which helps you do lots of your reconciliations and things of that nature through Verity Collect, which will be out in the market very shortly. And so -- again, the things that we're doing are the things that our customers have asked for, and it meets their standards. It meets the standards of not only the CFO and the controller, but the CIO and increasingly the Chief Legal Officer, which is the other aspect that's been interesting with the advent of AI. But you live this much more closely every day.

No, I do. And something you touched on there, Owen. Let's talk about probably one of the most important things in the room, how are we monetizing all this. So I think we sat in this very room last year today, almost the same exact day, and we had just launched our new pricing model, our platform pricing model. We launched it in North America in Q1. We launched it in the rest of the world in Q2. And so an update as to how that's going and how that fits into the bigger AI picture is very important.

So what we saw as proof points when we launched this model was an immediate uptake, a successful uptake with our new logos. For customers that weren't used to paying for software on a user base or seat-based licenses, they loved it. They said, "Oh, I can deliver this to the entire office of the CFO. I can deliver this to anybody within my organization, and it's the same price. I don't have to worry about adding accountants, subtracting accountants. I don't have to worry about taking 1 accountant out of California and putting 2 in India and getting charged more money." It was a great conversation, a great handshake with our new logo customers.

Now as we messaged to the market over several quarters there, it was a little slower on the uptake with our existing customers. A lot of our existing customers were fully implemented, fully adopted. They didn't care about unlimited users. If anything, they were reducing users. This is why we launched this new pricing model. We saw a phenomenon long before AI that as customers became better adopted when they came up for a renewal and they faced a 3% to 5% CPI increase or whatever is in their contract, they would find a way to reduce their license count by 3% to 5%. It became a revenue-neutral transaction, which is obviously not something that we wanted.

So we knew years ago, we had to move to a platform pricing model. We did a ton of work on it and launched it in 2025. Now what we saw second phase of this with our existing customer base, it really took off in the fourth quarter because it became not just unlimited users, but it became product-led. During our annual conference in September, we brought Studio360 to the masses. We showed it to everyone. There were thousands of individuals there, existing customers, new prospects, and they were really impressed by it. And the reason for that was Studio360 brought together our 4 primary solutions that Owen noted earlier.

Our core financial close, invoice to cash are the 2 largest. You also have intercompany and financial reporting and analytics, pretty much our consolidation tool. But nevertheless, it brought a single source of truth, a single data layer to our -- all of our solutions. That was the first captivating moment. Then for AI to be successful, you have to release agents into an environment where you have a single source of truth. We know of customers out there or noncustomers that have 40 ERPs and they're trying to do it themselves. And they spend a lot of -- a lot of time and capital trying to build their own agents.

And what happens when they release an agent into an ecosystem of 40 ERPs, they get 40 different answers. So there's the value of Studio360 as the platform, one single source of data, one single source of truth. And then we said, okay, if you want access to these agents, if you want to become even more efficient without compromising accuracy, which is paramount to our profession, then you got to move to the platform pricing model. And what we saw in the fourth quarter was that we had of eligible ARR, 4% of eligible ARR was on our platform model going into the quarter, 11% emerging from the quarter. And that was mostly from our existing customer base that wanted this new product, that wanted this innovation, that wanted to test it. So that's key.

Now there's a second element to it. We said it on our earnings call in February. Where do we expect that number to go for 2026? Well, we expect it to be at least 25% by the end of '26, giving a range of 25% to 35% on our platform model, which yields at least a 10% uplift on average at least, and it's product-led, which is key. This is something that the customers want. This is a pull for AI. And when you're dealing with accountants and finance professionals that are risk averse, you need them to pull, you need them to adopt, you need them to want it. So we're very excited about that. And here's the key takeaway here.

By the end of this year, we'll have at least 25% of our customers on a platform pricing model. Well, if you remember, 30% of our customers already are on a strategic product that is consumption-based. So by the end of 2026, at least 50% of all of our revenue and ARR will not be seat-based dependent whatsoever. It will be eliminated. And we're very excited about that. We know the industry is moving away from it. We are ahead of the curve. And by the end of this year, those seats will -- over half of our revenue will not be at risk for seats going away.

Yes. No, you guys have definitely been quite ahead of the curve on and move away from that seat-based model towards more of a hybrid type of pricing model here. Patrick, you mentioned a little bit 10% uplift on that kind of like-for-like switch from the old model to the new one. How should we think about the consumption element of that, how that ramps over time?

Yes. So there's 3 monetization events that occur here. Step one, you move to the platform pricing model. That's at least a 10% uplift compared to your standard inflationary uplift. That happens immediately, that's built in your subscription, and that only goes up if your revenue as a customer goes up, you move up in price. If you're successful, we're successful. That's monetization event, number one.

Number two, before we even get to consumption, one of the encumbrances to cross-selling our 4 solutions was that they were in silos. They operated great and they automated great within themselves, but they didn't talk to each other. Studio360 eliminates that. It brings a data layer naturally flowing between our 4 solutions. And when you're a CFO, that's what you want to hear. You don't want 4 silos, you want a single source of truth. What you also want to hear is a CIO, which are becoming more and more prominent in our buying decisions. That CIO no longer has to support 4 solutions. They're supporting one platform. And that's key from an internal cost and effort perspective. So the second monetization event is it opens up and removes encumbrances to cross-sell.

And then three, what you touched on, Chris. So our agents. We have a couple of agents out there in the ecosystem right now that we give away as part of the platform uplift, a small volume. It's de minimis in cost to us, but it's very important to our customers because for everything that Owen said, customers have to test those agents. They have to run them in parallel for multiple quarters against their current manual processes to make sure that the outcome is identical. They have to get sign off from their internal auditors. They have to get sign off from their Chief Legal Officer. They have to get sign off from their external auditors. They have to get multiple sign-offs and get comfortable with it themselves that, that agent is producing the same output as their traditional manual processes.

Once that happens, which in a SOX world, I can say this, I used to be the Chief Accounting Officer, it takes a couple of quarters to do that. You got to see this happen several months, several closes in a row. Once that happens, you're now feeling comfortable like, "Oh, I'm using this agent on a test basis for a handful of transactions. Now I can release it into the entire ecosystem and let it perform for all of my transactions." And once that agent gets above a certain threshold, the giveaway threshold and start hitting transactional levels, we start charging for that. That's monetization event #3, which you'll start to see -- show up in our forward-looking metrics at the end of 2026 and appears revenue in '27 and beyond. And that is growth above just the platform price. That is predictable subscription revenue. And as they consume more, they move up those tiers.

Yes. A big concern from investors is when you move from that seat-based model to a new type of pricing model, is that really net positive? Is it net negative? Is it neutral? You all are talking about a 10% uplift here. So I'm just curious like why are customers willing to pay that extra 10%? What's the value they get from moving over to this new model?

Yes. I think it's a couple of things. Again, we can tag team on this. One is because everybody gets to use it now, right? So we're not fighting that constant battle, right, raise the price 5%, we're going to reduce 5% of the seats. Over the last couple of years, we have really found our innovation genes again. And so the amount of stuff that we're bringing out to our customers is something they really want. And so when they see what they can get and then what they see what's on the road map and then they see the collaboration we do to build more capability, that gives them a lot of confidence.

I mean, that's the beauty when you've been around for 25 years, and you can -- you have a reputation of delivering what you promise. And so our customers are finding that very attractive. So the cost is not really the hurdle that you might be what you think it is. It's less of a battle than we had anticipated.

It's -- in addition to what Owen just said, why are our customers embracing this so far? It's 2 things, which in my mind are synonymous. It's delivery of value and it's delivery of outcomes and that's what customers ultimately pay for. They don't care what it costs to us. They call -- they care what they're willing to pay, what it's worth to them. So without compromising quality, precision and accuracy, these agents allow accountants to be more off the hands off the keyboard, more efficient, faster close.

And then those professionals, those accounting and finance professionals internally that have so much talent, you're unlocking that talent to either scale better, potentially reduce headcount or repurpose them to do other things within the business that are more analytical that maybe AI can't do yet. So if you're a CFO or a CIO, you look at what these agents are capable of doing and how they deliver these outcomes and deliver this value so much more effectively and efficiently, while you pay more for that. And that's why they've embraced this new model.

Yes. No, it resonates with me because when I was at the conference, I was speaking with one of your customers, and she was telling me that she's the only one with a BlackLine license, but there are other people in the accounting group that basically tell her what to put into the system so that they don't pay for the additional seats. But now because of the new model, they're able to...

You figured it out...

I figured it out.

Like sharing a password and...

Yes, exactly my Netflix account until they figured that out. Great. Let's move away from the pricing model. Owen, you came into the CEO role 3 years ago with a clear mission to turn the company around. So maybe for those investors who aren't familiar with the strategic changes you've been making over the past 3 years, what have been some of those? And what's been the net impact of those today?

Yes. Look, it's hard to believe it's 3 years. Time goes fast when you're having fun. I think the key things that we really made a conscious series of choices on where we wanted to play in the marketplace. So we've been very clear that we wanted to move much more upmarket and get out of the lower end of the mid-market. So very focused on upper end of middle market, enterprises and mega enterprises. And again, an example of how that sort of played out is the move from 50% of the Fortune 100 to 70% running on BlackLine is sort of a testament to the sort of the focus that we've driven there.

We made a lot of choices around industries and how we would approach that. So very successful in big places like an oil and gas industry or retail, banking, insurance, like we're really very focused now, much more by industry. We've made some very clear choices from a geographic perspective. So it's pretty much sort of like the G7 marketplaces and really making sure we can be successful there. We made choices around the ERPs that we would sort of work with and partner and then those that we wouldn't focus on.

So it was a lot about, honestly, Chris, taking this company in what I would call choices out versus choices in. We were trying to be everything to everybody, and you can't do that. And so we've been very clear about the execution of how we would run the business. We wanted revenue growth to far outstrip the cost of people, and we've done, I think, a pretty good job of getting that disconnect finally in place. We made choices around using offshore capabilities versus onshore. California is an expensive place to operate. No criticism of those of you that reside in California. But man, it's expensive. And so moving to places like India and Poland, Romania, we have about 25% of our workforce there from just a few years ago when it was low single digits. So we've made sort of all those strategic choices. But maybe more than anything else, we got back to innovating around the product.

And to Patrick's point before, I think we lost our way about what was most important, and that was outcomes for customers. And so I'd like to say, I know it upsets some of the investors, we're not in the business of selling software, we're in the business of delivering outcomes. And over the long term, that is the right thing for us to go do. And we've got that maniacal focus on customer success in a way that I think we had lost our direction on. And so we feel very good about that. And you'll start to see that not only manifest itself in gross bookings growth, but reducing that churn and attrition because we're really getting back to helping our customers be successful in achieving the value of what BlackLine brings. And so if we do that, keep doing that, we're going to drive the kind of success that we want for our customers and our shareholders.

Yes. It's Software as a Service. Everyone focuses on the software piece and forgets about the service piece.

Yes. Good point.

So a lot of that hard work has culminated now to this past quarter, seeing some really strong acceleration across your key metrics. ARR, 9%; CRPO, 13%; RPO, 23% year-over-year. And you're guiding next year to an acceleration on top line, 9% to 10%. So curious, what have been those key drivers that have really driven that acceleration you're seeing right now?

Yes. Look, I think it's a few things. When it comes to net new logos, it's being able to demonstrate the value of Studio360, the platform, what it can do, the interconnectedness of all the solutions that we have. It's the innovation road map and people are excited about that. Our partners are incredibly important to us. So it's nice for us to say how good we are and what we do, but it's even better when an Accenture or Deloitte or an E&Y or an IBM or KPMG advocate on your behalf. And so we're seeing sort of that. The pipeline, we have -- as you guys know, it's a long cycle. But we see the pipeline that started to build at the end of '24, build throughout '25. It's still building in '26. We saw the success of that finally closing in the fourth quarter. It gives us a lots of confidence of 20-plus percent gross bookings sort of in this upcoming year and continuing on that path.

And then it's getting back to our existing customers and getting them to get back on that finance transformation journey. We've gone back to every customer we have and looked at how well are they using BlackLine. And if they're not using it to its potential, how do we get back in there either through our own teams or with our partners to reinvigorate that journey. So we're having what I feel like is pretty good success on that. And then, of course, we now have more to bring to them. So 2, 3 years ago, I think our quota-carrying reps and others would say, we don't have enough innovation. I think now they don't say that any longer. Now it's like, wow, how do we get everything? How can we be better and able to bring this to the market? So we've got all of that kind of coming together in the right way.

And again, now taking a consulting mindset to this is so as a consultant, you don't get hired for your next project unless you've done the last one really well. And our organization is really, really fixated and focused on delivering the outcome. What did we say the ROI would be to that customer? And how well are we tracking on driving that for you? And that's what's giving them more confidence in the capabilities and buying bigger programs with us. I think the other thing, Chris, is we've been much more selective on the customers who we want to do business with.

Very early on, I ask our teams to figure out when you're talking to a customer, are they really serious about doing a transformation? And the answer is no, get out. Because we don't want them because they're not going to be successful and stick. It's like finding the right customers with the right executive sponsorship and leadership and we sat here a few years ago, and we talked about we wanted to move up in the office of the CFO. Why? Because the CFO and the controller care about digital finance transformation much more than somebody that might just be a user. And so we've had a lot of success in that regard. So those are some of the things.

Yes. You also brought forward your medium-term target of 13% to 16% total revenue growth, now pointing towards 2027 versus 2028 before. So what really gives you the confidence to do that?

You want me dive in on this one?

Well, you can in a second, but one word, execution. Simple as that. We have a nice strategy. Now it's execute, execute, execute. We've got a really good leadership team doing what they need to do. They work very well together, and we understand what we're trying to drive. But you can go through the math of it.

Yes. Yes, no problem. So if you look at what we did in 2025, a lot of the building blocks were put in place in 2024 and strategically in terms of what was going to grow this company. And we entered 2025 at about a 7% growth rate. And we exited 2025 based upon the metrics that you just shared there, Chris, all triangulating around 10-plus percent growth, leading indicators. So we came into the year at 7%, we exited at 10%. And we were able to achieve that turnaround, that inflection point that we signaled to the market at this time last year by a lot of the platform pricing. That's great, but still only 11% of our eligible ARR. There's a ton of opportunity there.

Our average selling price is up. We're landing bigger. We're landing with more products. We're landing with more mega and enterprise accounts. Those were some of the growth drivers, but those weren't all of them. And so that's why when we look at the investments we made in '25, just like we made investments in '24 around pricing and innovation and moving upmarket that benefited '25, we made investments in '25 such as FedRAMP, more innovation around agentic AI. Those things have not materialized yet, which is great because that's -- those are more growth levers for 2026.

So if we took a 7% to 10% in 2025, that's how we take it from 10% to 13% plus going into 2027. And that's how we're going to go about doing this. We still have a ton of opportunity with that remaining 89% not on platform pricing. We have a ton of opportunity in monetizing agentic AI. FedRAMP, while we won a couple of accounts, there's much more opportunity in the future, much larger opportunities in the future. So we pulled a few growth levers in '25, but not all of them, and that's why we expect to see compounding growth through next year.

Yes. I wanted to ask on the new customer front. We've coined this term the ERP super cycle, talking about the companies that are on, on-premise SAP, for example, and are moving to the cloud over the next few years. Curious kind of what you see within that pipeline within SAP, which obviously you've had a closer go-to-market relationship with, but also the other players in the space, Oracle, Workday.

Yes. So our pipeline, we've been clear about this, I think, at our last Investor Day with SAP has grown very nicely. Again, going back to November '24, when we sort of went through a reset in that relationship, trying to figure out what the path forward. I couldn't be more pleased with the progress we've seen in the last 15, 16 months on what we've been trying to do, not only on the product side, but in the go-to-market and customer success, top-to-top leadership and things like that we're working on now with sort of a joint proof of concept around their jewel AI with BlackLine AI capabilities. And so we've definitely seen a nice large uptick in that pipeline. But interestingly, it's still proportional.

We keep growing just as quickly in the rest of our portfolio, whether they're working with Oracle or Workday. Now we have been deepening that relationship with Workday. We expect that to continue to go forward. But of all the things we talked about of why BlackLine matters in the enterprise space, the mega enterprise space is our brand reputation is really strong compared to anybody else in that regard. And so if you want the best choice, first choice, safe choice, only choice, you come to BlackLine when it comes to that financial close capability. So we're very confident, as Patrick pointed out, about where we see the growth coming from, and it will be across all of the mega ERP players.

Yes. Let's shift over to margins. Operating margin expanded to 22% in '25 versus 19% a year ago. You're guiding to about 24% in 2026. So where do you expect to continue to get that additional operating leverage from?

So we can tag team this together. Look, I think the biggest cost in our P&L is people. We sort of shared at the end of the year, our revenue growth in the last 3 years is about 34%, 35%. The cost of the number of people that we've added was about 2%. We've made a significant shift of resources from high-cost geographies into lower-cost geographies. Every hire that happens in this company, I know some of you will smile when I say this, I approve every one of them. And it's a lot easier to figure out how to use AI than it is to come -- ask me to approve a hire. And then if you're going to do a hire, can we do that in a low-cost geography?

And so we've been very thoughtful about making sure that we're walking the talk with AI. And every executive leader has specific goals that they need to achieve around their use of AI before adding people. And there are certain parts of the company like quota-carrying reps. We're not in the world where we can sell enterprise software without people going out there. But in every area that Patrick drives from a back-office perspective with all those other back-office leaders to what the marketing team is doing to what customer success is doing, to what engineering is doing, we are figuring out how to use more and more AI to drive that performance that we need. And if we need to add people before we put them in high-cost geographies, can we look at low-cost geographies. So that will drive some of the expansion, but you've got much more that you deal with on this.

Yes. No, I think you touched on a lot of it. I mean, at the end of the day, our P&L is mostly people costs. And so the more we can move to offshore low cost or the more we can replace with AI, we evaluate that on an ongoing basis. And that's something -- that's not new. In 2021, we were a breakeven company. And we've been evaluating this for years to get to a 24% margin already. And that there's definitely more opportunity in future years to continue to expand that margin.

But if you think about it, AI, we're talking about in the realm of finance and accounting, but it was here from a customer service perspective years ago. It was here from an augmenting engineering and making them more efficient years ago. It was here from a case deflection standpoint years ago in terms of marketing and developing marketing material, and we did that. We embraced that. We were able to hold down headcount, hold down costs and inject technology in those areas to make our engineers more effective and more efficient to have a higher rate of case deflection, so we didn't need as many heads for customer support to be -- to generate more pipeline more aggressively with the same marketing spend by augmenting it with technology and AI.

We've been doing this for years. Now we're just crossing that next threshold in terms of other opportunities to continue to expand our margins. One thing though that is not specific to people and AI is our Google Cloud migration. We've been up here talking about it for years. Happy to report as of the first quarter, we completed that migration. 100% of our customers are on the Google Cloud. The redundancy of server costs is gone -- will be gone starting in the second quarter. So you will see a gradual expansion of gross margin as well coupled with all the things that Owen and I talked about from a people cost perspective.

Last question here, a similar kind of topic, capital allocation, driving shareholder value. How do you guys think about that every day?

You didn't ask me how frequently just I want to know what we're doing. So look, we have ongoing conversations with the Board as what's the best way to deploy our capital. Right now, we still think our best deployment is investing in the business organically, those things that we need to do. If we can find attractive tuck-in acquisitions like we did with the WiseLayer, we'll certainly pursue that. And then we're going to continue to buy back shares in the marketplace. And all the things you would expect us to be doing on behalf of our shareholders, we're trying to drive that. And I don't think we'll ease up on any of that in the near term.

Awesome. I think we can end it there. Thank you, Owen. Thank you, Patrick.

Thank you so much. Great being with you again.

Thanks.

Good day, and thank you for standing by. Welcome to the BlackLine Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, SVP of Investor Relations, Matt Humphries.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine; as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Ung, BlackLine, Chief Technology Officer, joined us.

Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q1 and full year 2026 are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of mid of this call.

While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today.

Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt. Good afternoon, everyone. Over 2 years ago, we committed to a fundamental transformation of BlackLine. We have been executing a methodical multiyear plan to reposition this company to drive revenue growth back into the double digits while expanding operating margins in line with our multiyear financial targets.

It began in the fall of 2023 when we laid out a new strategic vision to evolve from a suite of solutions for the controller into a unified intelligent platform for the CFO.

By early 2024, we implemented a new operating model to support this vision. We modernized our go-to-market engine, introduced industry-specific sales motions, we focused our efforts on larger mid-market, enterprise and mega enterprise customers where our value is most differentiated and shifted to a partner-first approach with the world's leading system integrators and SAP.

Throughout 2024 and into early 2025, we completed the build-out of our new leadership team to drive this strategy forward. As we enter 2026, our 25th anniversary, we believe the business is structurally stronger than it has ever been, supported by a healthy growing pipeline, a disciplined and cohesive team, an amazing partner network and our most comprehensive product portfolio to date, we are well positioned to execute our strategy and extend our market leadership.

Today, we are pleased to report that those intentional choices are translating into tangible results. We have established BlackLine as a critical partner for the world's most complex organizations, now serving approximately 70% of the Fortune 100, up from 50% in 2022. This validation supports our strategic goal of elevating our conversation within the new office of the CFO.

We saw broad-based success in the fourth quarter, driven by our platform strategy and strategic products. By combining the innovation of Studio360 with the commercial model aligned to value and not seats, we delivered our strongest booking quarter and year in our history, with full year bookings growth of 22%. We believe this performance validates the investments we made to grow our pipeline, modernize our go-to-market engine and accelerate innovation. We finished the year with higher close rates and solid demand, confirming that our execution is gaining traction.

We saw notable strength within our installed base, with nearly 3/4 of our bookings coming from existing customers. BlackLine customers are realizing immediate value from our platform, which allows them to fully leverage our latest innovations without user constraints. They are also investing in the future, specifically our Verity AI agents. This is translating directly into predictability and visibility. Remaining Performance Obligations, or RPO, grew 23%, driven by platform adoption and continued success driving multiyear renewals. Simply put, customers are making long-term contractual commitments to BlackLine as their strategic partner in the office of the CFO.

While our expansion motion shows solid progress, we remain clear eyed on retention. We believe Q4 was the peak of our churn and attrition cycle driven largely by the expected impact from our strategic choices in the lower middle market. However, our underlying business remains healthy.

To underscore the strength of our core, our enterprise customer cohort maintained a revenue renewal rate of 95% and also delivered a net revenue retention rate of 107% this quarter.

We are actively bending the arc on retention through deliberate structural changes. First, our shift to a platform model and success with multiyear renewals is fundamentally changing the nature of our customer relationships. We are moving away from transactional subscriptions based on seats towards long-term strategic partnerships anchored on business value. Second, we have optimized our customer success model leveraging technology and aligning compensation internally and with key partners to ensure the ecosystem is financially incentivized to drive adoption.

As we move through the first half of 2026, we expect the lower mid-market headwinds to subside, combined with these structural initiatives, we have high confidence in an improving retention profile in 2026.

We are also proving that trust, partnership and innovation command a premium with new customer deal sizes up 35%, driven largely by enterprise wins. We're seeing solid growth in the number of customers paying over $1 million in ARR, up 20% to 85. And notably, customers paying over $250,000 were up 14%. This confirms that when we focus on transformational outcomes rather than features, customers invest more deeply in BlackLine.

We continue to balance this acceleration with discipline. Even as revenue growth accelerated to 8% in the quarter, we delivered a 25% non-GAAP operating margin along with a 25% non-GAAP net income margin.

This efficiency is by design. Over the last 3 years, we have grown revenue by approximately 34%, while our total head count has grown by only just 2%, adding 40 net new roles. We believe we have effectively broken the linear relationship between head count and revenue growth, establishing a model that allows us to scale more efficiently.

Importantly, sales productivity continues to improve, driving a notable 30% decrease in customer acquisition costs this quarter. Additionally, with our Google Cloud migration now complete, we are beginning to stand down legacy data centers unlocking further margin potential and opportunities for strategic investments.

While the team and I are pleased with this progress, we are far from satisfied. We expect to continue to drive revenue growth back into the double digits along with further operating margin expansion in line with our multiyear financial targets.

Let's dig deeper into how we are winning. First, platform strategy. We have aligned our commercial model with our platform vision. Our shift to platform pricing is the mechanism that unlocks the value of Studio360. It aligns with how CFOs want to buy, focusing on outcomes and value not seats.

In Q4, nearly 3/4 of all new bookings leveraged to our platform with existing customers also accelerating their migrations. This platform first approach changes the customer relationship. Once customers standardize on BlackLine as their financial operating system becomes the natural foundation for broader transformation. This is helping to drive demand for our strategic products, which represented 33% of sales.

Intercompany and invoice to cash each had record quarters and years as customers trust us to deliver end-to-end outcomes. A prime example is Brown & Brown, a long-standing customer who expanded their financial close relationship with us by adopting our full invoice to cash suite. In 2026, we are moving towards a standard initial offering for all new customers that includes reconciliations, tasks, matching, journal risk analyzer and consolidation underpinned by Studio360 and AI, all on platform pricing. We expect this approach will drive larger initial deal sizes, enhance customer stickiness and create more opportunities to cross-sell and drive AI adoption.

Second, enterprise momentum. We are winning deals with complex global enterprises by speaking their language. Our focus on industry-specific outcomes is delivering results, allowing us to demonstrate unique operational and domain expertise that differentiates BlackLine in the market.

In the fourth quarter, we signed multiple large platform deals driving average new enterprise deal sizes up 41%. Nearly every one of these deals focused on how customers can leverage our Verity AI offerings.

Let's look at a few notable examples. In the consumer sector, we signed a 7-figure ACV deal with a global leader in food services. Operating in an industry defined by massive transaction volumes and decentralized operations, they needed to centralize visibility across thousands of locations. They leveraged our full financial close solutions with Studio360 and platform pricing to drive that efficiency.

In the oil and gas industry, we secured a large enterprise win with National Oilwell Varco where our deep industry expertise and platform approach were critical to drive their digital finance transformation.

In technology, we also signed a platform deal with a global leader in memory and data storage. Facing the financial complexity inherent in global manufacturing and supply chains, they chose BlackLine because they wanted to see value today, but also have a framework to adopt AI going forward.

This initial win validates our core value proposition, and we are already engaged in strategic discussions to expand their footprint with our intercompany solutions in Verity AI.

And in Financial Services, we resigned Invesco a former BlackLine customer who had moved to a lower-cost ERP competitor. They recognize the need for automation, scale and auditor trust that BlackLine provides.

Third, partners. Our partner ecosystem is a critical differentiator, driving demand and extending our global reach. In 2025, every single deal over $500,000 was one with a partner and our two largest deals of the year were direct partner referrals. These firms are now evangelizing Studio360, our Verity AI offerings and our strategic products, helping us secure major wins at companies like Raytheon and National Australia Bank.

Fourth, SAP. Our golden architecture strategy is beginning to deliver results. SolEx bookings performance was strong, highlighted by new wins with Siemens Energy and Caterpillar and a large expansion with Hitachi Energy, proving that our joint pipeline is maturing into significant commercial value.

Coming into 2026, I believe our alignment with SAP has never been stronger. We secured full product qualification for Studio360, unlocking the ability to sell directly into SAP's installed base of advanced financial close customers through our AFC integration. We are currently engaged with SAP leaders to explore integrations for SAP's [ JUUL ] copilot with BlackLine Verity agents to create a single unified digital workforce for finance. The objective is to create a seamless user experience while establishing a commercial framework to directly sell and monetize our Verity agents through a strategic proof of concept. Our shared goal is to define the future of the AI-powered autonomous close.

Critically, we have aligned BlackLine's KPIs as one of the measures of the compensation plans for both BlackLine and SAP customer success managers, ensuring our post-sales teams are financially incentivized to drive joint customer success.

We are also deepening our channel strategy in the public sector by partnering with SAP and a leading public sector reseller to accelerate growth and adoption in this large market.

And last, we have expanded globally, launching dedicated coverage in the Kingdom of Saudi Arabia with a combination of SAP, our local team and our new local Google Cloud [indiscernible] has already helped us sign our first deals in the region.

We expect our deepening and broadened collaboration with SAP to continue to drive momentum throughout 2026 and beyond. We are seeing the early stages of an important evolution in the office of the CFO. And as leaders look to move beyond simple automation toward intelligent AI-driven orchestration. The requirements for success are clear, AI in finance and accounting must be accurate, transparent auditable and secure.

We believe BlackLine is uniquely positioned to lead because we have built our platform on three essential pillars: data, context and agency. Together, these form a proprietary intelligence layer that allows BlackLine to build on its reputation and expand its market leadership.

The foundation of our AI strategy is our data and connectivity for over 20 years, BlackLine has served as the centralized hub where the world's most complex organizations turn raw data into financial truth. The scale of this continues to grow.

Last year, we processed tens of billions of transactions across our platform. We ingest data from thousands of disparate ERPs, subledgers and third-party financial systems. We cleanse it, sanitize it and normalize it, creating a unified financial data set that acts as a single source of truth.

To extend this further, we continue to expand connectivity via APIs and connectors, we have launched new connectors for Microsoft Dynamics 365, Oracle Fusion and Workday and are leveraging deeper integrations with Snowflake and upcoming integrations with Databricks. This allows us to harness data from across the enterprise, creating the high-quality fuel required for trusted AI.

We supplement this with intelligence and context. A generic model can summarize a document but lack the specific human and rich processing data needed to reconcile our balance sheet or manage industry-specific accounting challenges.

BlackLine has two decades of operational context from thousands of customers including historical reconciliation decisions, justification narratives and review and approval actions along with successful and failed transaction matches and historical exception handling and auditor interactions. This proprietary intelligence allows us to deliver context to wear predictions and automation, providing the necessary contracts to turn generative text into financial truth.

And importantly, our AI operates within a framework of proven governance with embedded controls, audit trails, segregation of duties and institutional experience that gives us the brand permission to be the trusted choice in the market.

We offer a managed digital workforce via our Verity agents, which are prepackaged, pretrained and fully auditable with clear chain of thought. We have architected our platform so that every action the AI take leaves a digital footprint identical to a human user.

This directly addresses the single biggest barrier to AI adoption in finance, the trust gap. CFOs cannot sign off on financial statements generated by a black box. By ensuring every AI agent leaves a standard immutable audit trail, providing the clear team of thought that auditors require we transform AI from an unacceptable risk into a compliant asset. This allows our customers to pursue productivity gains without compromising their controls environment. We are leveraging these three pillars to evolve our platform from traditional automation to Agentic workflow orchestration. By embedding intelligence directly into workflows, we deliver the outcomes customers prioritize, speed, accuracy and continuous audibility.

We're seeing the impact in the field. Nearly every deal in Q4 involved discussions around Verity and our innovation road map. Customers are focused on how we are developing AI for them and how it naturally fits into their unique processes to deliver ROI quickly and safely.

We are also seeing growing adoption of our AI with customer usage of our AI capabilities more than doubling quarter-over-quarter with nearly 20% of all customers now using at least some form of our AI features. We have an accelerating product cycle this year with an emphasis on launching and monetizing our Verity AI agents, a key part of our platform strategy.

First is already to prepared, this is our AI-powered reconciliation agent that we previewed in Q4 and is now in early access for our platform customers. Several large enterprise customers are already using it. With even more planning to adopt this in Q1.

Customers can elevate their users from preparers to reviewers offloading repetitive work and freeing accountants to focus on high judgment analysis. This helps to bridge the talent gap and allows customers to handle growing complexity without adding headcount.

Next is Verity collect, planned for Q2 and this agent automates many of the manual tasks of the collections process like predicting payment behaviors and autonomous dunning. The excitement from our partner ecosystem is notable as this targets high-volume repetitive work where agents thrive, directly impacting working capital.

And finally, Verity accruals, this agent targets hydro [indiscernible] areas within the accruals process. Unlike standard rules-based automation, this agent interprets context to manage complex estimates. We are actively selling this today and it pairs perfectly with our existing journal solutions to drive automation into the last mile of the close.

We look forward to sharing a deeper dive into these capabilities at a virtual investor session in March.

Beyond commercial products, we are using AI to transform our own delivery. We have released a new category of implementation agents for our partners and professional services team. These agents standardize the engagement process from qualification to architecture and testing, rapidly accelerating time to value and ROI for customers. Internal usage of AI is also allowing our engineering teams to accelerate product delivery and further enhance and expand our existing solutions across financial close, intercompany and invoice to cash. This transformation goes beyond our products by modernizing both our technology and our delivery models, we are building a significantly more agile and efficient company.

We are increasingly excited and confident in our ability to win in this rapidly shifting market and I want to thank our partners and my fellow BlackLiners for their extraordinary efforts.

With that, I'll turn it over to Patrick to discuss the financial results and outlook in more detail. Patrick?

Thank you, Owen. Our fourth quarter financial results and metrics reflect the progress we've made and the confidence we have in the business as we focus on delivering in 2026 and into 2027.

Turning to our financial results this quarter. Total revenue grew to $183 million, up 8%. Subscription revenue grew 8% with services revenue growth of 17% due to accelerated customer [ go-lives ] and implementations a direct result of our improved services delivery engine.

Annual Recurring Revenue, or ARR, was $702 million, up nearly 10% and with an approximate 1.5 point benefit from FX in the quarter. We saw material strength with customers doubling down on their commitment and partnership with BlackLine in the quarter, driven by platform adoption and continued success with multiyear renewals. As a result, total RPO grew 23% to $1.1 billion. Additionally, current RPO accelerated further to 13%, reflecting current market demand.

At the end of Q4, platform pricing ARR was 11% of eligible ARR. This is ARR that excludes SolEx and public sector. This was up from 4% at the end of the third quarter, illustrating the market's initial acceptance of our new commercial model and the momentum we are seeing. Calculated billings grew by over 9% in the quarter. Our trailing 12-month billings growth, which helps normalize for quarterly variations improved to 9%.

Our customer count of 4,394 remains in line with our expectations as we move through the end of our strategic shift further upmarket. Despite this headline number, we saw net customer growth versus the prior quarter and year in our enterprise customer base. Our revenue renewal rate in the fourth quarter was 92% with continued impact from lower middle market churn. Additionally, we saw some expected churn associated with external M&A this quarter, which impacted this rate by about 2 points.

Net revenue retention for the quarter was 105% and reflecting strength from expansion with existing customers, particularly those moving to our platform. Notably, NRR for enterprise customers saw a material improvement to 107% this quarter. This reflects the health of our core business and our success in cross-selling into our largest accounts. The strategic products attach rate was healthy again, representing 33% of sales this quarter. This growth is a direct result of our go-to-market teams, leveraging our platform to drive larger deals. Demand was notably strong for intercompany and invoiced to cash, which both had record years.

We had a strong close to the year with our SolEx partnership as we are starting to see our joint efforts materialize in bookings. At the end of the quarter, SAP customers accounted for 26% of revenue.

Turning to margin. Our non-GAAP subscription gross margin remained strong at 82%. Our non-GAAP gross margin was approximately 80%, as mentioned earlier, we have completed our GCP migration and expect to see improvement in gross margin as we move through the year. Non-GAAP operating margin was nearly 25%, driven by better productivity across the business, especially within our GTM teams, which showed material improvement in productivity and lower customer acquisition costs this quarter.

Non-GAAP net income attributable to BlackLine was $45 million, representing a 25% non-GAAP net income margin. We delivered operating cash flow of $27 million. and free cash flow of $20 million, largely driven by variability in working capital. For 2026, we expect free cash flow growth in the mid-teens, with free cash flow per share growth in the high teens.

Regarding our balance sheet, we have approximately $778 million in cash, cash equivalents and marketable securities versus $896 million in debt. As a reminder, our 2026 notes are due in March of this year. and we expect to retire them with cash on hand. This will decrease our fully diluted share count by approximately 1 million shares and is incorporated into our guidance.

Finally, we continue to execute our capital allocation strategy. In the quarter, we returned approximately $34 million to shareholders through the repurchase of 632,000 shares. This brings our full year 2025 total repurchases to over $235 million or 4.5 million shares and underscores our confidence in the long-term value of our business.

Turning to guidance. Our outlook for 2026 reflects a prudent approach we are confident in the momentum we are seeing with platform adoption and the launch of our Agentic AI offerings. Our guidance assumes a steady ramp as these growth levers continue to gain traction in the market.

For the first quarter of 2026, we expect total GAAP revenue to be in the range of $180 million to $182 million, representing approximately 8% to 9% growth. We expect non-GAAP operating margin to be in the range of 18.5% to 19.5%. And we expect non-GAAP net income attributable to BlackLine to be in the range of $31 million to $33 million. Or $0.44 to $0.46 on a per share basis. Our share count is expected to be about 74.5 million diluted weighted average shares.

And for the full year 2026, we expect total GAAP revenue to be in the range of $764 million to $768 million, representing approximately 9.1% to 9.6% growth. We expect non-GAAP operating margin to be in the range of 23.7% to 24.3%.

And finally, we expect our non-GAAP net income attributable to BlackLine to be $172 million to $180 million. Or $2.37 to $2.48 on a per share basis. Our share count is expected to be about 75 million diluted weighted average shares. Owen?

[Operator Instructions] And our first question comes from Chris Quintero with Morgan Stanley.

Congrats on the acceleration here. I know it's been a long time coming. I wanted to ask about RPO and the customer adds above $250,000, I thought those were the two most interesting metrics in the quarter. Can you unpack the drivers there and what really drove that kind of inflection on those two?

I think on the RPO, it was obviously, the multiyear renewal strategy that we've had in place, which is working out pretty well. In addition to a lot of the newer customers we brought in have tended to have longer contracts. So we've seen both of those coming together, which has been very positive development. So I think it tells the story of us really trying to take customers on a digital finance transformation journey, not just looking for a quick fix. And so we're certainly seeing a lot of the buildup in regards to that. And so that was the first piece of it.

Yes. Owen, to elaborate on that. We're landing bigger with our platform pricing model and having product-led growth. So we're seeing a significant increase in our average selling price and our new customers. And more importantly, those customers are signing longer-term contracts because they want to be part of the finance transformation and partner with us over multiple years. You combine that with our strategy to extend renewals longer and those two factors. More importantly, our product-led growth is what's driving that 23% that you're seeing there, Chris.

Got it. That's super helpful. And then I wanted to ask about AI and your strategy there. We've seen some data points that 50% to 65% of an accountant's time can be automated and saved by leveraging AI. So I'm curious if that's kind of similar to what you're seeing and how you ultimately capture some of that value, whether that's through Verity or the WiseLayer acquisition.

Yes. Look, I think Jeremy and I will tag team this together a little bit. But certainly, there's a lot of opportunity to help take out some of the mundane work that some of the accountants go through. And so we are certainly seeing that, that is becoming more and more part of the conversation with our customers.

As you think about how our AI footprint has grown so far, over the past year. We certainly saw more of a pickup in the use of Generative of AI with our customers, and we expect now to see that shift more into Agentic AI.

I think from my experiences so far, our customers are being very measured and methodical on how they're thinking about the use of AI. And so there's definitely lots of cost savings that we see are there, but it's also the value and the accuracy and the timeliness of what we think we're going to be able to provide for our customers going forward.

Remember, Chris, the way we've gone about building our AI capabilities was really with world-leading companies out there as well as the world's leading auditing and accounting firm. So we think we've got the right model that will help our customers achieve more savings for what they're trying to do. But Jeremy, anything you want to add to that?

Yes. The increasing adoption from AI specifically you saw we call out earlier is really resonating with our customers. They're excited about adopting it, but they understand that they need to do so cautiously with respect to policies and controls. So there's a lot of interest, there's a lot of excitement. It's a validation that there's work and time to be saved from our AI solutions.

Our next question comes from Steven Enders with Citi.

Okay. Great. Maybe just following up on the AI question. I think you've called out what 20% of customers are so adopting some level of AI. I guess what are kind of the things that you're typically seeing them taking on? And I guess as you're kind of having those conversations and talking through the customers' AI strategy, what is kind of the typical deal dynamic or discussion look like? And is there kind of any other, I guess, competitor considerations when you're having those conversations?

I think from what we're seeing, again, we talked about more of the Generative AI versus Agentic. And so you can think about things like our journal risk analyzer are already flagged, the ability to sort of help summarize documents, those things where you still have a pretty good level of human interaction to review and understand what's come out without just sort of accepting it. So that's sort of the biggest piece of what we've seen.

But again, I think interestingly, after we released our visions around Verity Prepare at BeyondTheBlack in the fall, there was a lot of interest in that, and we saw that really manifest itself in the fourth quarter and now in the beginning of this year.

So there's definitely a lot of interest. There are some -- still some complexities, though, Steve, is just to be clear. It's not just what the CFO and the controller want to do, it's the CIO as well as the Chief Legal Officer. So that trial for working through as companies are trying to figure out how quickly to move forward with AI, particularly given the requirements that they have to deal with, with their auditors and the SEC and things of that nature. So -- but Jeremy, again, anything you want to add?

It's about the customer journey on AI. I think when we land with our solutions. I think there's a spectrum of AI capability that they're able to adopt. And I think that's helping them meet them where they are in terms of their customer journey from a digital transformation standpoint. So whether it's our matching solutions and traditional matching or whether it's AI extensions to those capabilities, we can meet them where they are in their customer journey, but they can see the accelerations they're going to get from these AI products as well.

Okay. Great. That's helpful. And then I guess maybe just on the guide dynamics I think primarily looking at kind of the margin profile, just anything that we should kind of keep in mind for maybe the 1Q margin dynamics versus the rest of the year or maybe some kind of expense timing dynamics as we look at how '26 might play out?

Yes. So I mean, if you look back over the years, Q1 has always historically been probably the lowest operating margin for this company, and there's a very explainable reason, for one, payroll taxes, we bear the highest burden like most companies in the first quarter of the year, as you pay out year-end bonuses and commissions.

And then the second element to that is we do our sales kickoff in January of each year around the world. and that carries a cost to it as well. I think more importantly, though, like if you look through throughout the rest of the year, there is a very high confidence model to reach 24% operating margin with that margin growing throughout the year. So this is not unlike any other year, and you'll see expansion of that margin notably in the next 3 quarters.

Our next question comes from Alex Sklar with Raymond James.

Great I want -- maybe one more AI question for me here. Just in terms of what are you seeing in terms of defined AI budgets at some of your enterprise customer base, how incremental of an area that for BlackLine to happen to? And how are you positioning your solutions, maybe not just the Verity one, but your solutions broadly to capture those budgets?

Yes, I'm not sure I can tell you that it's necessarily a defined budget. But I think in the conversations that we're having and our teams are having in the field is if we can show real demonstrable value for what our AI can bring than the CFOs and their teams seem to be able to find the budget for what they're looking to accomplish.

So I think the hurdle for us is really being able to demonstrate a very strong ROI along with the reliability, trust accuracy and security that our customers have already come to expect from us. [indiscernible] time Jeremy [indiscernible] again. I don't know what you're seeing when you're out talking to us?

What I see is, especially with our acquisition of WiseLayer and [indiscernible] is that there's an opportunity for us to expand upstream in some of the use cases that have traditionally not happened in BlackLine, but see data in BlackLine. So [ Corus ] is a great example of this. And so there's appetite for customers to take that work on with BlackLine as they see the value and ROI from these actions.

All right. Great. And Patrick, I appreciate the disclosure on the 11% of the eligible base on new platform pricing. Can you help provide some color what's embedded in the '26 outlook in terms of the percent of the base that will adopt in '26? And any change to how the sales force is approaching renewals this year on platform pricing versus last year?

Yes. It's really been embedded in the motion over the last year. If you recall, we launched platform pricing in North America in the first quarter, and then we introduced it to the rest of the world in the second quarter. And as you could see from where we went in the fourth quarter, that acceleration is really picking up. So when you think through the guide for this year, SP640721348 We're -- we expect to see about 25% to 35% of our customers on platform pricing by the end of this year. I do want to be clear, though, our largest renewal cohorts throughout the year are in the second and fourth quarter. So that's not going to be linear throughout the year. But by the end of the year, that's where we expect to be, and that's what's embedded in the guide. .

Our next question comes from Patrick Walravens with Citizens.

Great. And congratulations, you guys. So Owen, do we address the whole issue of creating shareholder value? And maybe do it from the perspective of if you're a long-term shareholder, can you just talk about how BlackLine thinks about it, what governance mechanisms you have in place, how open you are to considering strategic options as they come our way. I think that would be super helpful for everyone.

Yes, Pat, as you can imagine, those are the issues that the Board is dealing with. And I think they well understand their fiduciary responsibilities take that very seriously and we'll exercise their responsibilities appropriately.

For the management team what I talk to them about is we can only control what we can control. We are not necessarily have the ability to influence the stock market other than through the performance that we deliver on behalf of our customers and then the benefits, hopefully accruing to our shareholders. as appropriate. So I don't know I can say much more about it than that, Pat. I think that's really I'll say at this point.

Okay. Fair enough. And then -- so I did not -- and I think I sent you this yesterday. It was interesting to me that people are so devalue about how AI is going to impact SaaS companies like you, yet interestingly, one of the competitors who went out of business yesterday was a tiny company. And so if you look at -- we're obviously in the transition, the last transition was from on-prem to SaaS on from SaaS to AI. Who do you think makes it through that transition in the best shape? And what are the characteristics you look for or that we sulfur? And then how does BlackLine fit into that?

Okay. I think you start with a very simple premise, which is what is the -- do you have a mission-critical platform or not, it's got to be beyond basic features and functionality. Do you really have the domain knowledge that your customers require. So for us, it's in the office of the CFO as well as understanding the particular industries that we serve our customers with you have to have a trusted, reliable brand, your systems have to be secure. You have to deliver accuracy, efficiency, intelligence all those things matter. You have to have the data that's proprietary to what you're trying to do with your customer set. Somebody told me, I'm not sure I know the exact number, but we're approaching upwards of 1 trillion transactions that we have in our own data that we use to help figure out things with our customers.

So I think those are the things that matter more than anything else. You have to have a partner network that is very comfortable because many of our customers rely on the professional opinions of implementation partners of what are they seeing in the marketplace and things of that nature. So all that factors together.

And I think for us, Pat, we're in business 25 years. I think the original slogan of BlackLine was something around trust is in the balance. And I think that's still true today. We want to make sure that we do things that are secure, reliable, accurate intelligence our customers, and that goes a long, long way. And I think one last thing that I've observed in the last couple of years that we've really focused on within BlackLine is to be very client-centric, customer-centric and understanding where they were trying to get to and then working to create solutions that support that. So all of that is, I think, what matters today, and I think that's where we're going to thrive as an organization.

Our next question comes from Adam Hotchkiss with Goldman Sachs.

Great. I wanted to ask Pat's question in a bit of a different way. When you're hearing from your customers about the broader landscape of technology offerings and office of the CFO, what is your process for ingesting customer feedback for features that they've seen either from smaller companies, upstarts, companies like LLM, financial analyst assistance. And how do you go about prioritizing which investment areas make the most sense for putting them into your product and driving ROI for the business?

I think Jeremy and I will tag team this a little bit. But I think there's a couple of pieces to it. One is -- as you know, we work with the world's leading companies, right? So we spend a lot of time with them on site, getting their feedback, both on the existing product and what they'd like to see. Good feedback from them from what they're seeing in the marketplace. So that all factors in. We have a very strong customer advisory board that meets on a regular basis that helps inform us our partners are amazing in helping us to understand what they're seeing in the marketplace that helps influence what we do because they tend to see things not just company specific, but across an industry or cohort in a way that no individual company can sort of look at.

There are things that we do -- internally, we have a competitive intelligence group that tracks and tries to understand what everyone else is doing out there from maybe a more traditional competitor to upstarts and then we're looking to see how does our road map compare to that.

So if we haven't figured out before somebody else has, how do we become a fast follower to make sure that there's no gap that somebody else gets ahead of us on something. So those are all the things that we're trying to do. But Jeremy, I'm sure there's more that you've certainly experienced.

Yes. Customer obsession is a key part of what drives our product development we're seeing to customers, but also gathering data from how they operate within our systems. So across the cohort of customers that we have, we have a great operational lens into how these different customers across oil and gas, financial services and other industries operate. And that led us to see trends and build benchmarks and optimize processes that they ultimately go into our SaaS product but also our AI offerings as well. And this provides what you might have heard about as context that informs our agents to operate more accurately, more efficiently and that these ultimately help drive more effective outcomes for our customers as well.

Okay. Great. That's really helpful. And then I guess on the WiseLayer acquisition. I know it looked like it was a pretty small acquisition, but just maybe talk a little bit about that, what that brings to BlackLine and then maybe what it tells us about your build versus buy mentality as you look at AI and the ecosystem?

Yes. Look, I think there was really a couple of things that made WiseLayer are very attractive for us and also sort of say 1A and 1B, 1A was the quality of the people that they had. I mean, really good, smart, innovative people, doing some very, very interesting things. And then the second was the quality of the product, and we actually were using a product, and we could see the value that it was bringing for our own team.

And so it took the combination of what they were trying to accomplish in the marketplace with how we could see the usability of that product and how it fit into the things we were doing across our own financial close capabilities, particularly sort of marrying this with our journals capabilities all made it very, very attractive. And it helped to accelerate a lot of what we were trying to do. And so from the build versus buy perspective, we're always thinking about can we build it, how long will it take? And we really thought this was a very good accelerant to what we were trying to do in the marketplace. But Jeremy, we're up to our eyeballs in this one. So it was Patrick [indiscernible].

Yes. Just to elaborate even further. Our own internal accounting department did a proof of concept. And to Owen's point, really impressive technology, very impressive team. It was just an overall very impressive company. .

And just to provide a little more clarity around the numbers of that, the contribution to the guide that was provided earlier today is de minimis. This is largely a technology buy. You'll see in our 10-K in a couple of weeks that the purchase price was a little under $25 million. But there's a lot of enthusiasm internally in terms of what this company, what this technology can do and how we're going to incorporate it into our overall platform.

I'll just add, is rapidly demonstrable AI ROI to our customers. [indiscernible] value driven by AI solution, and that was extremely exciting.

Our next question comes from Patrick Schulz with Baird.

Maybe first on the platform pricing, and I appreciate all the disclosures you provided here. But for those customers who have already transitioned to the new platform pricing model, can you talk about what kind of spending uplift you have realized? And I think last quarter, you guys called out some larger customers, maybe pausing their buying decision to have more strategic conversations around platform pricing and AI. How did this play out during the quarter? And what were some of the learnings from those customers? .

Yes. So what we're seeing is twofold here and very excited about the acceleration that we've seen in the uptake in platform pricing. And yes, there was a slight pause last quarter as some customers thought through if they want to add additional users to the traditional per-seat pricing or if they want to move to the platform.

What we're seeing is with our customer base, the value is becoming more obvious to them. The product that we're delivering to them has uptake and they're willing to pay that additional price per year or base fee going forward.

That fee is an immediate uplift on day 1, and that's the first source of monetization as we move through this platform pricing transition.

And then the second piece of that, as those customers access more and more of our agents through the platform, that will be the second level of monetization on a consumption basis. So it's an immediate uplift on day 1 as they adopt the platform, and then it provides future revenue growth through consumption as they use more and more of our agents.

Okay. Very helpful. And then maybe a quick follow-up just on retention rates. I know you guys have called out some moving pieces there, whether it's Q4 maybe being the peak of attrition in the market churn cycle and at the same time, seeing very strong net retention rates with the enterprise customers. Just as we look at that '26 guide, what are you guys assuming for both growth and net retention rates? Just any color there would be helpful. Appreciate it.

Yes. Just to provide a little color there. I know we landed this quarter at 92% retention. But one thing that was highlighted at the enterprise level that was 95%. And I believe we signaled last quarter that we had some M&A that was coming up in the fourth quarter, and that was also a 2-point headwind. So when you look at our enterprise customer base, exclusive of these one-off M&A transactions, that retention rate was 97-plus percent.

So when you think through our guide for this year and into the future, we see a transition of improvement throughout the year, and that return to the mid-90s overall retention rate, inclusive of mid-market.

Our next question comes from Daniel Jester with BMO Capital Markets.

Great. Maybe another one on the platform. In the fourth quarter, I think if I caught this right, you said 75% of new bookings chose the platform I guess for the 25% that didn't, are there any sort of commonalities and as you shift to a more standardized bundle next year, what considerations do you have about sort of meeting customers where they are versus the platform approach?

Yes. I think Pat, you can take the second half of that question, I'll take the first half, which where I say there's any commonality to it as I've tried to look through and understand it with our sales team. I think we still have some customers that were a little bit of a larger size, but still trying to work their way through what digital finance transformation was truly going to mean for them.

As an organization, as you can imagine, you have companies from A to Z is to spread out where they are. And so for us, I think one of the things we've tried to be smarter about is selecting the right customers and part of our evaluation is are these customers that will, in our view, move to the platform over time. And so we're willing to invest in them, work through that with our partners typically.

And so that was sort of underlying it. It's just customer where they were at as an organization, how much they thought they might want to be able to fight off and start with at the very, very beginning. But for us recognizing we truly believe that they would go on a digital finance transformation journey. Cover the second half for '26 and how you're thinking about it?

Yes. And another part of that story for that 25% that did not take up platform pricing within new logos, you still have the lower mid-market and mid-market contingent there, where maybe they're not ready for this level of finance transformation and delivery of a platform. And to be clear, that was something that we assumed and have been messaging over the last year that we knew long term, the uptake of this model would lay largely in the upper mid-market and enterprise space. So that was in line with our expectations.

As we think through 2026, and I think you used to comment how we meet customers where they are. I think the one difference going to 2026, which is embedded in the guide is the platform itself and the agents that are built with it and the value that they provide to our customers. as customers see that. And as they see the value that is delivered through the platform, they would be -- they -- it's built into the guide that they are more willing to uptake our new model. So we expect that to be north of 75% going through 2026, and that is built into the guide.

Okay. That's great context. And then maybe, Patrick, just sticking with you on the GCP finally coming to a conclusion. I'm sure you're probably happy to not have to talk about that too much more with us. how should we be considering sort of the flow of the year for gross margin in '26? And maybe any puts and takes as you're ramping up all of your AI capabilities and any impact or your precious view on impact on gross margin there.

Yes. So as you think about gross margin throughout the year, it's a similar story to operating margin, but for different reasons. We did complete the GCP migration in Q1, and there were some redundant costs as we shut down any redundant servers. And so what you'll expect to see or what you will see is a generally expanding gross margin throughout the year. and an overall improvement in gross margin for the full year.

I know where we realized the GCP migration has garnered quite a bit of attention, but there's other elements within gross margin as well, such as improved case deflection, through alternate technologies or AI, which is driving down our cost to serve. So you will see, as we messaged over the last year or 2, generally improving gross margin throughout the year.

Our next question comes from Matt VanVliet with Cantor.

Because Owen, since you've been here, you've had definitely a lot more focus on kind of the rigor throughout the sales organization and execution there. And certainly bringing in Stuart has reinforced that. But curious on where you feel like the business is today in terms of sort of reengineering some of that go-to-market process and getting the right people in the door, versus now '26 being just sort of executing on that playbook. And where you feel like that level of execution is coming in right now?

Yes. I think it's a good question. And believe it or not, Stuart, not even here technically a year yet. I think, on Wednesday or tomorrow hits his 1-year anniversary. I think a lot of heavy lifting was done this past year and even part of the prior year where we've made a lot of improvements in the underlying technology, the use of that technology, getting rid of things that didn't matter in moving the organization forward.

In one of the stats we talked a little bit about -- we've added 40 people over the last 3 years or 2% drive 34% revenue growth. But interestingly, if you look underneath that, almost 60% of the BlackLiners in the company are new. So we've done a lot of transformation to people in the organization. That's no disrespect to those that were here previously. It's just what we needed to move to that next level. We needed to bring in a new cohort of individuals.

I don't want to speak for Stuart and the leadership team. But I would say I think they feel pretty good, by and large about the leadership they have in place around the globe at this particular point in time. There's been a lot of changes made. We've made a lot of upgrades in the individual quota-carrying reps, the BDRs, customer success, all of that has been part of the transformation. I don't know that you're ever done because you're always continuing to try to upgrade in that regard. We've done a lot of work around our business value architects and things of that are presales.

And so I feel pretty good about it, but I recognize we're never completely done. And I think the one thing I'm continuing to focus on, so we just did a sort of quick internal pulse survey for all of our people. And a lot of really good feedback on the organization. The biggest thing that they're continuing to sort of push us on is further enabling them to keep driving all the things we're trying to do in the organization because the level of innovation that's coming out of Jeremy's team and product and tech is pretty amazing. But then how do you make sure the rest of the organization to keep up with that and bring it into the marketplace.

And I'm very encouraged by what we saw over the past year and pretty confident as we head into this year, but that will be the thing that we'll keep driving.

Our next question comes from Robert Simmons with Rosenblatt.

I was wondering how much revenue contribution are you assuming from your agent patterns this year? How material can they be to your ECC bookings?

So over the course of the year, the primary revenue contribution coming out of our Agentic offerings and other AI offerings is the uplift that we referenced earlier today. in terms of moving to the platform in that day 1 uplift.

Throughout the year, we're going to be releasing agents I guess, through each quarter and then evaluating how customers consume those agents developing trust with our customers, with those agents. And then once we get to that point, we will begin monetizing those agents through consumption. So within our guide, the prominent contribution from AI is the uplift, and we call it platform pricing, but it is product-led growth, and that results in an uplift in platform pricing. And then the contribution from consumption is not overly material for 2026, but it is definitely built into our target model.

Got it. That makes sense. And then I believe you talked previously to 20% for us growth in '26. Are you still expecting that kind of growth this year?

Yes. I think yes, we are.

And our next question comes from Billy [ Fitzsimmons ] with Piper Sandler.

Appreciate it. Maybe I'll ask about any color on what the guide implies from an SAP contribution perspective? Or anything notable to flying within that pipeline any significant upticks or volatility in activity there?

I think we've made good progress with SAP. We're very, very proud of what we've been able to accomplish over the last couple of years. as you've seen a sort of steady state of SAP customers being roughly about 25%, 26% of our revenue.

I don't think you're going to see that materially change in the upcoming year. We've got a very strong pipeline. We're seeing a lot of progress with what we're doing. But I think interestingly, we're having really great success through non-SAP customers as well.

So I don't think you should expect to see much of a shift in that mix of SAP versus non-SAP over the course of this year. That said, we're going to keep doing everything we can to drive that partnership to be as successful as we possibly can on behalf of our customers and our shareholders.

Thank you. I would now like to turn the call back over to Owen Ryan for any final remarks.

I just thank you, operator, and thank you all for taking the time to listen tonight. Look forward to catching up with many of you this night in the next couple of days to answer further questions. So everybody, take care, and we'll talk soon. Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Third Quarter 2025 BlackLine Earnings Conference Call. [Operator Instruction] As a reminder, this conference call is being recorded.

At this time, I would like to turn the conference over to Mr. Matt Humphries, Senior Vice President, Investor Relations. Sir, please begin.

Good afternoon, and thank you for joining us today. With me on the call are Owen Ryan, Chief Executive Officer of BlackLine as well as Patrick Villanova, Chief Financial Officer. For the Q&A portion of today's call, we'll also have Jeremy Young, BlackLine's Chief Technology Officer joining us.

Before we get started, I'd like to note that certain statements made during this conference call that are not historical facts, including those regarding our future plans, objectives and expected performance, in particular, our guidance for Q4 and full year 2025, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent our outlook only as of the date of this call. While we believe any forward-looking statements made during the call are reasonable, actual results could differ materially, as these statements are based on our current expectations as of today and are subject to risks and uncertainties, including those stated in our periodic reports filed with the Securities and Exchange Commission, in particular, our Form 10-K and Form 10-Q. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

All comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. Finally, unless otherwise stated, our financial measures disclosed on this call will be non-GAAP. A discussion of these non-GAAP financial measures and information regarding reconciliations of our historical GAAP versus non-GAAP results is available in our earnings release and presentation, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today.

Now I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt. Good afternoon, everyone. Today, I will detail the changes we have made across our business that are beginning to deliver tangible results.

Over the past 2-plus years, we have methodically rearchitected our leadership team, our go-to-market engine and our technology and operational structures. That foundational work is now largely complete. These changes give us greater confidence that we can deliver accelerating revenue growth and margin expansion as we exit this year and move into 2026. But first, let's start with this quarter's performance.

We delivered another solid quarter of improving execution. Revenue growth increased to 7.5%. We achieved a non-GAAP operating margin of 21.4% and a free cash flow margin of 32%. Patrick will provide a more detailed discussion on the financials shortly.

The strength this quarter was from new customer acquisition. New customer bookings were up 45% and the quality of these wins is evident with the average new deal size more than doubling by 111% and the median new deal size up by approximately 50%.

New customer bookings mix accounted for 41% of overall bookings. This is not just about closing more deals, is about winning larger, more strategic platform deals often against our biggest competitors.

Let me put this into perspective with some examples. Through our direct sales efforts, we secured our largest ever total contract value deal with a leading global commercial real estate services company. This deal took 2 years to close and was multifaceted, with intercompany serving as an entry point and includes a multiyear expansion across our financial close suite, leveraging Studio360 and our new platform pricing.

We directly landed another new logo with a Fortune 20 company who chose our entire financial close suite, Studio360 and our platform pricing model, replacing existing tools and solutions. This was a great example of perseverance and leveraging past success as the CFO's previous experience with BlackLine translated into a meaningful new win.

And in the insurance industry, we won a multi-solution deal with Accelerate, a leading middle-market specialty insurance exchange, looking for a scalable platform across both invoice-to-cash and financial close, the customer move forward with BlackLine recognizing that a platform approach with Studio360 was the optimal solution to support their future revenue growth versus remaining with multiple legacy vendors.

On the partner side, our SolEx channel performance is improving. We closed mega company deals this quarter with Coca-Cola Europe Pacific Partners and with Boots U.K. Limited, proving the strength of our golden architecture with SAP.

A key driver in many of these wins was our new platform-based pricing model, which accounted for nearly 3/4 of new customer bookings and is seeing solid international adoption after only 2 quarters.

Our strategy is not just about winning in established markets, it is also important to unlock new growth opportunities. We have continued to make progress within the public sector. Despite the federal government shutdown, our pipeline continues to grow and we successfully delivered the production instance for our sponsoring agency in October. We anticipate completing final testing by mid-December and are on track to receive final FedRAMP approval in early 2026.

Now turning to our existing account base. The interest in our Studio360 platform, new pricing model and our Verity AI offerings created some noise this quarter. We are seeing 2 dynamics play out as we see more customers evaluate or adopt platform pricing. First, as we succeed in delivering higher levels of automation, customers can achieve their outcomes with the need for fewer licenses, which is leading to user attrition.

Second, we saw several large customers pause user ads to instead engage in deeper, more strategic discussions about moving to Studio360, platform-based pricing and our Verity AI offerings.

Our platform pricing model is designed to decouple our growth from a simple seat count and align our revenue directly with the value we deliver. While this strategic transition will take time to work through our installed base, we believe the outcome is clear and more committed customer base providing more predictable value-aligned revenue.

Although these dynamics created a slight headwind to net revenue retention, we view it as a leading indicator of a positive transition. In fact, the most telling indicator of long-term customer confidence came for our renewal activity, along with our solid platform pricing adoption. Importantly, the mix of multiyear renewals has increased to represent over half of all renewal bookings this quarter, demonstrating that customers are buying into our long-term vision and locking in their partnership, which increases the predictability and durability of our revenue.

Finally, the planned churn from our strategic deemphasis of the lower end of the market is nearing its conclusion. We expect this headwind to be largely complete in the first half of next year. These outcomes are not an accident, they are the direct output of the foundational transformation I mentioned earlier. With much of this foundational work now complete, I want to detail the 3 pillars driving these outcomes.

First is our go-to-market engine. Much of our success this quarter comes directly from the methodical work we have done to re-architect our go-to-market engine for scalable, efficient growth, focusing on 3 key areas.

We have invested heavily in the tools and the processes our teams need to win. Our entire sales motion is now powered by modern billing, prospecting, contracting and CRM systems that remove friction and provide better insight. For example, our experience with a new AI-powered prospecting tool has shown that a BDR can nearly triple their pipeline generation. All of our BDRs will now use this tool to more quickly create and qualify opportunities.

We've also transformed our marketing efficiency. Our teams are leveraging new digital campaigns and tools to drive a significantly higher ROI on our spend. In fact, despite a decrease in aggregate marketing spend since 2023, we have seen strong growth in pipeline generation through the end of Q3, which is up approximately 50%.

And while it's important to leverage new technologies and reengineered processes, it comes down to people. With new leadership has now established across the globe, we've actioned a more rigorous performance management program, elevating the bar and adding seasoned sales professionals. This focus is already paying off. Rep productivity is improving. And by the end of 2025, we expect it to improve by nearly 30% versus last year.

These coordinated efforts are delivering clear results. As I mentioned, rep productivity is up and importantly, our competitive win rates, especially in takeaways approved again in Q3. We believe this is direct evidence that our Studio360, platform pricing and improving go-to-market execution are enabling us to win more in the market.

The ultimate outcome is clear. We are building a more productive growth engine that costs less to operate. We expect these changes will drive a 10% improvement in our customer acquisition costs in 2025 and even greater improvements next year.

Second is our progress in product and technology. We have modernized our technology stack to support a future scale, efficiency and AI-powered innovation. It starts with infrastructure. A critical milestone is the near completion of our multiyear GCP migration. I'm pleased to report we only have a few customers remaining before we can fully decommission our private data centers.

Finishing this project will unlock significant operating leverage and provides a modern, scalable foundation for our future innovation. This serves as the foundation for our Studio360 platform, as the central nervous system for modern finance, its power begins with a unified data layer. Powered by our partnership with Snowflake, this layer is now leveraged by 90% of our customer base for advanced reporting in less than 1 year. This helped us achieve an approximately 80% cost reduction in data storage.

The real game changer for Studio360 is our progress in open connectivity. Our platform was architected from the ground up to be ERP-agnostic and our Studio 360 integrated capability extends his vision far beyond ERPs to third-party financial systems. This ability to rapidly connect to any data source can allow customers to realize financial transformation much more quickly.

We're also seeing good momentum with our ERP connectors. Our Oracle Fusion Connector is already live with over 50 customers and our Workday and D365 connectors are already being used by paying early adopter clients. This success is now unlocking the full potential of Studio360 for our large portfolio of Oracle, Workday and Microsoft customers.

This powerful platform infrastructure is enhancing our entire solution portfolio from our newest technology for our most established products. The performance improvements are dramatic. For example, our new big data matching solution built on this modern stack delivers a 98% reduction in match times and handles nearly 30x the data volume or our previous solution, which we see as tangible proof of our ability to deliver at any scale.

We are also accelerating the delivery of new innovation. Our high-frequency reconciliation solution was adopted by 10 customers shortly after its general availability in Q3 and is already helping build a multimillion-dollar pipeline. And this just isn't about new products, we are also driving product-led growth within our core. For established solutions like Journals, we've introduced new self-service capabilities for several common use cases, allowing customers to realize value faster and at a lower cost.

And importantly, this unified trusted data ecosystem is the essential fuel for our Igentic AI capabilities named Verity. Now I want to spend a moment on this because in a world of intense AI hype and uncertainty, it is critical to understand why we see AI as a significant opportunity that deepens our competitive advantage. Our moat is not built on a single attribute on a powerful combination of our proprietary data and our deep expertise in delivering trusted, auditable solutions to the office of the CFO.

First is our expertise and trust and auditability. In the office of the CFO, Black Box AI is a nonstarter, trust, transparency and auditability are paramount. Our entire platform was built from the ground up to be a system of record with a complete unbroken auto trial.

Our approach is validated by our recent ISO 4201 certification for responsible AI which formalizes our commitment to governance, risk management and human oversight. In a world of increasing regulation, we view our deep, culturally ingrained expertise in building auditable enterprise-grade systems that finance leaders and their auditors trust is a massive competitive advantage.

And second is data, AI models are only as good as the data they are trained on, and we believe our data is unique. It is not just that we have data from over 4,000 customers of all sizes across all industries and all geographies, is that we have the historical financial and operational data set for our customers going back to the day they started with BlackLine.

This proprietary data set represents the accumulated knowledge of what thousands of companies have done to close their books and manage their financial operations. We believe we are sitting on a wealth of process-specific data, which we are only at the early stages of utilizing. This can allow us to deliver unparalleled value. We can provide industry-specific benchmarking that shows the customer how their processes compare to their peers and where they can improve. We are able to train our AI models on the most intricate cases by industry in a secure, auditable way because we have the real world historical data to do so.

This combination of proprietary data and our leadership in trusted auditable systems is precisely why we believe we are positioned to win with AI in the office of the CFO. And this is just not a theoretical advantage. We are translating this directly into product reality. We began deploying Vera, our conversational AI to our customer base in October, just one month after its debut at BeyondtheBlack.

With Vera as the supervisor of our agentic workforce, we are launching a suite of powerful agents to execute high-value tasks. For example, we already prepare our agent for account reconciliations has shown they can deliver even higher levels of automation for customers in a trusted and auditable manner. Soon, we will deploy VeritoCollect to deliver agenda capabilities to our invoice to cash customers, automating customer outreach and accelerated cash collection cycles.

These initial agents are the first step in our broader strategy to address the full spectrum of financial operations. Future releases will target other complex areas across record-to-report and invoice-to-cash, including agents focused on high-volume transaction matching, variance analysis, remittance automation and on-demand financial analysis.

In parallel, we are executing a proof of concept with SAP to ensure the seamless technical and commercial integration of our AI-powered solutions into their ecosystem. This is a critical step in aligning our platforms and preparing to monetize our joint offering for our shared customer base.

And finally, our focus on innovation and AI also extends to the implementation process. Our efforts to reinvent the implementation process are already delivering significant results. In Q3, the number of customer go lives increased by nearly 70% year-over-year and 17% sequentially. This is a powerful proof point of our team's improved execution and directly contributed to our services revenue this quarter.

More importantly, it means our customers are realizing the value of their investments faster. We are also applying our AI strategy to go to the next level. We are preparing to launch implementation agents designed to automate and standardize the most common phases of deployment. We will begin piloting these agents with customers later this month before scaling them globally in the first quarter of 2026.

Our focus on efficiency extends across the entire business and is organized around 2 key initiatives, creating a more efficient operational structure and leveraging AI to drive internal productivity.

We have further adjusted our cost base for greater operating leverage. We have aggressively optimized our global footprint by moving headcount from high-cost to lower-cost locations.

When I joined as co-CEO, our workforce was overly concentrated in high-cost locations. As we exit this year, approximately 25% of our BlackLine professionals are delivering for customers in lower-cost geographies. This strategic shift provides a significant and durable structural advantage on margin as we move forward. In parallel, we closed offices in high-cost areas while opening or expanding talent hubs in lower cost centers like India, Poland, Romania and Mexico.

Our confidence in AI comes from firsthand experience, we are not just selling this transformation, we are living it. Internally, we have aggressively created and deployed AI tools to become a more efficient and innovative company. Today, BlackLiners are leveraging our internal AI platform or third-party AI tools in their daily work.

The results in our product organization are promising. Nearly all of our engineers are leveraging AI tools today and our most active developers are completing over 100% more poll requests than less active users. This is not just about coding faster. It is about delivering value to customers faster.

Our innovation cycle time, the time from an initial idea to that feature being in a customer's hands, has improved by 23% year-over-year, with over 160 features and products being released this year.

We have also created our own AI tools to drive efficiency, reduce costs and better serve our customers globally. Our recent example is our own internal AI translation services for our solutions that can rapidly create and provide documentation and training for customers in multiple languages, allowing us to not only reduce costs but ensure we provide consistent and high-quality experiences for our customers. This internal adoption is a powerful efficiency engine. We view it as an opportunity to bend the curve on future costs and accelerate revenue growth through innovation.

In summary, while operational improvements are never done, we have made real strides in how we run the business. Our strategy is clear and our execution is showing tangible results. While I am pleased with this progress, our team remains intensely focused on the execution that lies ahead.

The leading indicators we have seen this year all point to a business that is accelerating. These factors give us great confidence in our ability to deliver sustained profitable growth consistent with what we have previously shared at our past 2 Investor Days.

With that, I will turn the call over to Patrick to provide more detail on the financials and our outlook.

Thank you, Owen. Our third quarter financial results reflect the execution Owen has laid out. Disciplined operational management, combined with steady progress across key indicators that point to continued acceleration through the end of this year and into next.

I'll walk through the details of the quarter and our guidance for the remainder of this year as well as a preliminary view into 2026. Total revenue grew to over $178 million, up 7.5%. Subscription revenue grew 7%, with services revenue growth of 13% due to accelerated project delivery in the quarter.

Annual recurring revenue, or ARR, was $685 million, up 7.3%. We continue to see tangible evidence of deepening customer commitment in our forward-looking metrics. Total RPO growth was 12.4% and current RPO was up 8%. For reference, our average contract length was 27 months this quarter, up versus last year and sequentially. And more importantly, new customer contract length was up nearly 10 months versus the prior year.

Calculated billings grew 4% in the quarter. This figure has an embedded 4-point headwind, which is largely timing related. As we continue to win larger, more complex enterprise deals, we have seen some customers move forward with quarterly versus annual billing terms.

Our trailing 12-month billings growth, which helps normalize for these effects was 7%. Our customer count of 4,424 this quarter reflects our strategic resegmentation of the market moving away from lower-end customers. We project this transition to be substantially complete in the first half of next year.

Our revenue renewal rate in the third quarter was 93%, up versus the prior year and the prior quarter driven by healthy enterprise performance in the upper 90s with middle market in the mid-80s.

Net retention rate for the quarter was 103%, which includes a full point of headwind from FX. On NRR, we also saw net user adds slow in advance of customers adopting our platform pricing model and evaluating our AI road map.

We continue to see a positive shift in our sales mix towards higher-value solutions. Our strategic products accounted for 36% of sales this quarter, up from 32% last year. This growth is a direct result of our go-to-market teams leveraging our unified platform to drive larger multi-solution deals. Demand was particularly strong for our market-leading intercompany and invoice to cash solutions.

SolEx was seasonally steady in Q3, accounting for 26% of total revenue. Looking ahead, our Q4 SolEx pipeline is solid, and we are executing against it with several deals already closed in October, positioning us for a solid finish to the year.

Turning to margin. Our non-GAAP subscription gross margin remained strong at 82%. Our aggregate non-GAAP gross margin was approximately 79%, reflecting a higher mix of services revenue this quarter due to the strong performance at accelerated project delivery from our teams. Non-GAAP operating margin was 21.4%, driven by better productivity across our GTN teams this quarter and reflects costs from our BeyondTheBlack event, which took place in September.

Non-GAAP net income attributable to BlackLine was $38 million, representing a 21% non-GAAP net income margin. We delivered a record quarter for cash flow. Operating cash flow was $64 million and free cash flow was $57 million. This performance was driven by the combination of strong collections execution from our team and the timing of certain payments within the quarter.

Regarding our balance sheet and capital allocation, we have approximately $804 million in cash, cash equivalents and marketable securities versus $895 million in debt.

Finally, we continue to execute on our capital allocation strategy this quarter. We returned approximately $113 million to shareholders through the repurchase of 2.1 million shares. This brings our year-to-date total to over $200 million and underscores our confidence in the long-term value of our business.

Now turning to guidance for the fourth quarter of 2025. We expect total GAAP revenue to be in the range of $182 million to $184 million, representing approximately 7.4% to 8.6% growth. We expect non-GAAP operating margin to be in the range of 24% to 25%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $42 million to $44 million or $0.58 to $0.61 on a per share basis. Our share count is expected to be about 75.1 million diluted weighted average shares.

And for the full year 2025, our updated guidance is as follows: We expect total GAAP revenue to be in the range of $699 million to $701 million, representing approximately 7% to 7.3% growth. We expect non-GAAP operating margin to be in the range of 22% to 22.5%. And finally, we expect our non-GAAP net income attributable to BlackLine to be $153 million to $157 million or $2.08 to $2.13 on a per share basis. Our share count is expected to be about 76.6 million diluted weighted average shares.

While we still have 2 months left in the year, the trends we see across the business give us increasing confidence in our preliminary outlook for 2026. Based on our strong pipeline, the adoption of our platform pricing model and operational improvements, we expect to deliver a combination of accelerating revenue growth and continued margin expansion next year, assuming a stable macro environment. The balanced approach to growth and profitability gives us increasing confidence on our path to achieving the Rule of 40 targets we outlined at our Investor session recently. Owen?

Thank you, Patrick. And before we go to Q&A, let me just say that we are obviously aware of the recent market commentary about BlackLine. As a matter of policy, we do not comment on market rumors or speculation. The Board and management team engaged with shareholders routinely as well as constructively, and we will continue to do so, and that is all we intend to say on this topic.

Operator, could you please now open up the line for questions. Operator? Operator.

[Operator Instructions]

Operator, we're ready for questions when you are.

Our first question or comment comes from the line of Patrick O'Neill from Wolfe Research.

Just kind of wanted to touch on the commentary around some large customers pausing user adds as they weigh options around Studio360 platform pricing in some of your AI offerings, is sort of the right way to read that? Is that maybe some fields or some net new ARR slipped in the quarter as a result? And maybe -- can you just help us quantify in terms of net new ARR, the impact on these dynamics? And is that something you expect to continue into 4Q? Or is that just sort of idiosyncratic to the quarter?

Yes. No. So I think it's a good question. And we did see some deals slip at the end of the quarter. Obviously, with the Verity announcement, in particular, a lot of interest in in AI. And so -- and we have seen that continuing uptick in conversations right through today. And so a lot of, as you can imagine, interested in what BlackLine has to offer, did cost us probably a couple of million dollars of delay deals at the end of the third quarter that are now in the fourth quarter. Some of them have closed during the month of October, others will close, we think over the balance of the next couple of quarters.

I do think that what we're seeing in the pipeline certainly is showing a real increase on the larger end of deals for mega enterprise and the enterprise space. Those deals tend to take a bit longer but they are much more important for what we're trying to do as an organization as we move customers onto our platform and take a full advantage of all of the capabilities that underline the Studio360 platform.

[Operator Instructions]

Operator, do you have more questions? Operator?

Just a second, sir.

For all the listeners, apologies, it seems the operator is having some technical difficulties that he's trying to get sorted out, so please just bear with us again, apologies.

We have Patrick O'Neill from Wolfe Research in the queue.

Operator, we just completed that one. The next person in the queue should be Rob Oliver from Baird. Can you please let him then to ask his question. Thank you.

Thank you. Mr. Oliver? Our next question comes from the line of Rob Oliver from Baird.

Can you guys hear me okay?

Yes. And I'm very sorry about what's going on here.

Awesome. No problem, as well. So I guess I wanted to go back to flesh out the previous question just a little bit. So as you guys -- I guess something this quarter took you guys by surprise. And as you move through this transition, I just wanted to ask philosophically about this issue of automation and customers and seat versus platform? Because what it seems to me is what you guys laid out last year was a strategic shift, which enables customers to capture value without necessarily needing to commit on the seat side. So is it a logo churn that you guys are seeing of size as well as seat count internally around the model transition and the new platform? And then I had a quick follow-up for Patrick. Just wanted to better understand that.

Yes. Thanks, Rob. I think that here's what we're seeing in the business and what gives the team and me confidence that makes us really increasingly confident that we can deliver on the commitments that we said we would do for the business. We have laid out, as you know, guidance to return to our growth rates to the mid-teens as well as improve operating margin and return capital through share repurchases. When you think about all of this together, right, there's obviously 4 pieces. There's gross bookings, there's churn, there's what we're doing on the expense side and then obviously, attrition management.

From a gross bookings perspective, what you should understand is our performance this year is showing the ability to land larger, more transformational deals with customers. New customer bookings, as we said, were up over 40% this quarter, and our net average deal sizes have doubled since last year. The pipeline has continued to grow, and it is really beginning to ripen, a continuation of the trend that we see. Now obviously, the bigger deals we do, particularly the mega enterprise, the enterprise space, take 10, 12 months to happen.

For us, what we're seeing now is on a year-to-date basis through the third quarter, our gross bookings growth was about 15%, and we expect to go through the fourth quarter with growth in gross bookings at about approximately 20%. And we expect that growth rate to continue throughout next year on the gross bookings side. So what that is showing and improving is that we can win in the market. We're taking market share. We know all about that.

The second piece of this then you talked about is churn. On churn, the headwind for us has been and will be for a couple more quarters, is that strategic deemphasis of the lower-end customer base that is really beginning to near its conclusion. We expect that the abatement to take place by the midyear of next year. And what's really driving that is the rigorous qualification and customer selection processes that we put in place in the middle of '23 when Therese and I stepped into the role. So remember, most of our deals are 3 years back then, they are now sort of rolling off the books.

The other key thing besides the change in customer selection is we have radically revamped how we do implementations with our partners and our own team, focusing much more on just go lives. We're really focused on the outcomes for our customers and all indications of all new customers that have now come in, in the last couple of years, they're very well adopted as we move forward. We talked a little bit in message about expenses as well. So we've made a lot of changes to the organization to strengthen the foundation. This work really focused on operational efficiency.

I know I get a lot of questions about effectiveness of go-to-market. But what this now allows us to do is scale very efficiently with a very modern platform stack of things that we're trying to do to optimize the cost base and importantly, we've been able -- beginning to be able to decouple revenue growth from operating costs. So we expect that to drive further expansion -- margin expansion and greater levels of free cash flow next year. That's what's sort of giving us confidence on the margin side.

Now let me turn to the last piece, which was part of your question, Rob, and that relates to attrition. This is an area of intense focus for us around the leadership team, something we expect to work through this year and into next. And we really are experiencing 2 types of attrition that we're working our way through.

The first, for lack of a better term, is success-based attrition, where customers have really been achieving very high levels of efficiency and effectiveness with BlackLine that are actually requiring fewer user licenses. It's what the core value of the proposition is the value proposition what BlackLine delivers, but it's suboptimal for us for long term. It's the reason we've been trying to drive towards platform pricing because we recognize we have to decouple our growth from seat count and align that with the values and outcomes we're driving on behalf of our customers.

With the release of Verity AI, along with the accelerated innovation across our core product and Studio360 platform, it allows us to go deeper and broader with customers leveraging the trust and brand permission that we've built. So we view that as a positive trade-off for the medium to long term, even if it's impacted us a little bit on attrition this year.

Now the other piece that's really critical is attrition that relates to underadoption of our solutions. We have been dealing with that really through 2 parts of what we're trying to accomplish. One is we've been aggressively leveraging the data that we now have to better understand our customers' usage and engage with these less adopted customers to get them back on a path via our Studio360 platform and the underlying solutions. We're using this information in a way that allows us to have very meaningful and candidly, sometimes very difficult conversations amongst and between our customers, the ERP providers, the implementation partners and BlackLiners.

The second piece of this really relates to our multiyear renewal efforts, which have been coupled also with the changes we've made around implementations to the processes, what we're doing with our partners, with our customers as well as the optimization of what work we're doing. This combination has really allowed us to reengage with customers and deepen and broaden the relationships that we have with them.

If you remember when Therese and I stepped into the role, we talked about elevating in the office of the CFO. That is happening now. And the positive of that, again, is it allows us to have these deeper, broader conversations. But in the short term, we've still been dealing with some attrition. But as I mentioned before, we expect to see gross bookings grow about 20% next year. And we expect to see based on the actions we're taking on churn and attrition, at least a reduction of 10%, if not 15% in CNA for 2026.

So when you put all that together, as we think about where we're going, the increase the stronger gross bookings growth, the declining churn, the greater expense management and a very clear plan on reducing attrition is giving us the confidence that we're sort of communicating to deliver the top line and the bottom line results we have committed at Investor Day, and we expect to deliver that in 2027 compared to the range where we gave you from 2027 through 2029 in the long-range plan.

So I know, Rob, that was a long question. I think you -- or a long answer, you said you had a follow-up question, so what's the next part of your question, please?

Yes. I appreciate it. It was going to be for Patrick. Patrick, just on I guess, catching up with you guys kind of over the last couple of quarters, there's been some positive indications around customers that do adopt the new pricing model and kind of what the kind of like-for-like pricing is. So I know that you guys have had -- you broke out some nice numbers on the bookings side of customers taking the new platform? And any early indications there of kind of on the pricing side, if you're still seeing -- I mean, obviously, notwithstanding the fact that you're seeing some seat-based churn, are there customers where you're still seeing the kind of uplifts you expected to see?

Thanks, Rob. Yes, we are. So when we started I guess, introducing this platform pricing, which we started domestically here in the United States in Q1 and then internationally in Q2, we had a plan. And we continue to be ahead of that plan in terms of the amount of bookings or conversions what we've had to that. We are well ahead of that plan from a new logo standpoint.

As you heard in the prepared remarks, we landed a large deal, our largest deal ever in terms of TCV, and that was on platform pricing. So from a new logo perspective, we are well ahead of our plan. We have seen an uptick in Q3 in our installed base, our existing customers adopting this. And in combination, we still continue to be ahead of our plan that we laid out earlier this year from a platform pricing perspective.

[Operator Instructions] And I see our next question comes from the line of Chris Quintero from Morgan Stanley.

Really great to hear about the expected acceleration into next year. I guess as you kind of just mentioned bookings growth of about 20% expected next year. If you would kind of distill that into maybe the top 3 factors, what's really driving that booking strength and improvement here as you go into next year?

Yes. Thanks, Chris. I would say the biggest thing, again, has been us changing the conversations and having them at higher levels in organizations, and seeing and being able to talk to our customers truly about digital finance transformation. So we've been sort of working our way through being viewed as a point solution to more of a platform. Those conversations, the capabilities, the innovation that we've been able to bring to the market in the last 2 years is resonating very well.

One of the things that Jeremy and the team have done has listened very closely to our customers. And so you look at the amount of new product and innovation we rolled out last year, that same thing this year, and then the road map we have, our customers are really starting to see us in a way that says we are going to be a true partner for them as they go through digital finance transformation.

I think the other thing is the work we do with our partners. If you remember, one of the strategic choices we made a couple of years ago was to call out a lot of partners, and we have deepened the relationships with the blue chip firms that are out there in the world. And they also are part of those conversations we're having with customers about digital financial information. Many of those folks are working with CFOs and Chief Accounting Officer, Corporate Controllers every day. And so that is certainly a piece of it. It's the access and the conversations at a higher level. Our guys have really raised their game in the conversations when they're out there talking with customers.

And then candidly, so much of it is about the product-led growth that we've been trying to drive. I mean, again, one of the things that, that we've gotten back to doing really well is listening to the voice of our customer and building solutions that work for what they're trying to accomplish, but now doing that through the lens of a platform versus just a point solution. So those are the things, Chris, that are showing up.

And again, when you look at our pipeline and how it's maturing, so much of that is on the higher end of the market, which is really where we see we can deliver a lot of value for our customers.

Awesome. And then I wanted to follow up on the competition angle. It seems like on this call in your prepared remarks, you were talking more about kind of competitive takeaways than you have in the past. Is that kind of the right takeaway here? And I guess, like what's really working well for you to take some deals away from your competitors here?

Yes. Yes. So we are seeing a nice uptick in competitive wins. I think, again, a lot of this talks about -- I think at one level, BlackLine is viewed as a very safe choice in the office CFO. We've got a proven track record. The quality of our implementations continues to get better with our partners, the optimization, the trust and brand that we built, the products that we're bringing to bear, the scale with which we can operate. It was talked about some of the new things we can do in the marketplace. And so all of that is sort of just giving our customers that much more confidence that we can deliver on our promises.

I think one of the things that I like to tell our team all the time, we're not necessarily in the business of selling software or in the business of delivering outcomes for our customers and doing that with our partners and our clients, that's really starting to show very, very nicely, and that's helping us in our win rates and obviously being able to rely on existing customers to serve as references to other customers. It's very compelling.

And then the last piece of that, that we are seeing is we are really deep in a lot of different industries and the ability to sort of connect those experiences. So when we're going in, we're not just talking about accounting and finance. We're talking about accounting and finance specific to that industry. And then, by the way, when we can show where we've done it elsewhere for a peer set, it gives our customer base, which tends to be a little bit risk-averse, that much more confident on what we can deliver because we've proven we can do it elsewhere already.

Our next question comes from the line of Alex Sklar from Raymond James.

Owen, maybe for you on SAP, a lot of optimism on building pipeline throughout the year with some of the changes there. I think the comments where you've got a good start to the Q4 selling season, but what else from the BlackLine side, are you still focused on to really inflect that opportunity?

Yes. Look, I think the health of the SAP relationship overall is really solid. And I think we mentioned in the prepared remarks, the joint proof of concept that we're working with them from an AI perspective, we continue to put the innovation that we're creating here through their PQ process. Obviously, having Stuart Van Houghton and a number of other people that have joined from SAP be part of the go-to-market framework, has all worked very, very well.

I think we mentioned in one of the earlier calls, the point that we were now sharing customer success or customer usage between BlackLine and SAP, which was something brand new. We now have sort of dedicated customer success people on both sides of the SAP BlackLine relationship that will really help us to reduce some of the attrition we sometimes see in that partnership because now we're focusing in a way that, quite frankly, we hadn't been able to do in the past and again, gives us that confidence we're going to see the attrition rate drop in 2026 and beyond.

So those are all the things that are going on. There's lots of activity taking place in each of the markets. I just came back from a couple of weeks in Asia Pac. Some of my other colleagues also went over to Asia Pac, where we met with the leaders in the different countries over there. So obviously, it's nice to hear things coming out of L.A. and Waldorf, but what's more important or what's the boots on the ground, I think those are where the relationships are getting better and deeper. And so we're seeing nice progress there across the board.

Okay. Great. And maybe a follow-up for Patrick. Just in terms of kind of the 2026 outlook. You think you said kind of factor and consistent macro. I know it's something that's been tougher to project this year. How would you kind of -- how are you characterizing the macro? So we've talked about some of the things your customers are facing with kind of platform pricing and Studio360 adoption. But from a macro standpoint, like how has that progress since Q1 when we kind of started talking about the different scenarios through third quarter November here? And what are you exactly factoring for next year?

Yes. Thank you. So with regard to the macro environment that would lead to the 20% growth rate that Owen indicated, it would be the environment that we're in today. So when we were thinking about back in April and evaluating the potential impact of tariffs, we found that, that largely did not have an impact on the business this year. So when we talk about a macro environment going forward, if we maintain the current state that we're in today, that is the basis for the projection that we were casting upon 2026.

Look, I think the one thing that we're all trying to work with our customers on here is you've probably seen there's about 1 million corporate job layoffs, I think, over the last couple of months. A lot of that necessarily -- or not necessarily, but it's in the back office, and that's certainly creating some opportunities for us to talk with our customers about how they can use BlackLine because of the efficiency that we're driving for our customers and you power that with what the -- what we're demonstrating to them around AI. And so it could become a little bit of a tailwind versus a headwind depending on how these companies choose to move forward.

Fascinating to me in my trips around the world in the last month, and I've spent a lot of time on the road in markets that I would have thought would have been slower or more resistant to adopting the kinds of change that you sort of sometimes see in North America, that is accelerating throughout the rest of the world. And so I think again, that sort of is a bit of a positive tailwind from where I sit today.

And I show our next question comes from the line of Patrick Walravens from Citizens.

Great. And it's nice to see that the -- you're starting to see the signs of what you've been working on for so long.

I'm right, Patrick.

We're well impatient over here. I'm sure you are, too.

I hadn't noticed.

My question for you is you made an interesting comment. You said that the conversations between the ERP providers, the customers and the implementation partners can be very difficult, why is that?

Well, because you wind up with customers serve have sometimes these views of how quick their transformation is going to go, how easy it's going to be. You replaced an ERP system. That's a complicated project. People change priorities change, things get emphasized, deemphasized and everybody wants to think it's, well, just slam in the technology, and it will be in Nevada. And it's not -- that's not the answer. It's about not only changing the technology, it's making sure you change all the processes that go with that and then also helping people through the change management of what all this takes.

And so it's very easy for somebody to say, well, it's only because of X, but it often is because of X, Y, Z and A, B, C. And so what we're trying to do more of now is engaged and lean into those conversations. And what we're seeing is positive, it's showing up in the multiyear renewals because we're forcing things that maybe we had in the past wouldn't have done is getting these customers back on that journey and showing them what the art of the possible is. It's so critical from my vantage point around Studio360 to have the blueprints that are part of that. It's so critical that we can now talk about the ability to integrate, the ability to sort of orchestrate what they're doing to visualize it and then have the control and compliance that's on top of all that, those things that we're forcing into a conversation that, candidly, it isn't always the easiest thing to do, but sitting there are not engaging doesn't do anybody any good.

And again, where we're seeing, I think, the uptick is our customers signing up for multiple years because they know they got to get back on this journey. And I think the other thing that's interesting about this a little bit, Patrick, I'm not sure it's scientific, I also think now that people are getting back in offices, face-to-face conversations are a good thing to have and are sort of driving some of the changes in how things are beginning to unfold.

Yes. I agree with that. Okay. And then Patrick, 2 quick ones for you. So first of all, I mean, why does -- you're in line on EPS this quarter. So you took the EPS for the year down by $0.05 to $0.11 bottom top of the range, so for Q4. Why is that?

There's 2 factors there, Patrick. The first one is you're talking about non-GAAP net income is the interest that we earn on our cash balance. And as we indicated earlier, we have purchased $200 million plus in stock this year as part of our share buyback program, which is driving down the interest that we earn on that. The second driver is the big beautiful bill. while that has provided an infusion of cash flow for us and many other businesses, it does not change our non-GAAP tax expense. So the expense remains constant from a provision standpoint, but we do have a cash flow benefit from that bill.

Okay. And then the second question is just so we understand clearly what you guys are saying about the -- about next year. So at your financial analyst session, you presented 2 slides. One was the target model framework. I'm sure you know it by heart, right, which starts with total revenue growth of 13% to 16%. I think it goes all the way down to your operating margin. And then you had another slide which showed your commitment to the Rule of 40, which had you at 38% in '27 and 40% in '28. So what exactly is it that we're going to see in '26 now?

In 2026, you will see at least a Rule of 33 as we committed to in Las Vegas.

Okay. So is there any acceleration of this framework?

For 2027, yes, Patrick. That's where, again, we talked about what we're seeing from a gross bookings perspective, what we're doing on the churn and what we're seeing on the expense side. So as we think about the revenue growth, that's really when we get to that teen growth number in '27, we'll see an acceleration of revenue throughout the year. We think we'll see an acceleration on the bottom line. But the real impact of that will work its way throughout the financial statements throughout the course of the year and again, then show up pretty clearly starting in 2027.

Okay. So target model framework slide now, that's now through '27?

Yes. Yes.

And I show our next question comes from the line of Steve Enders from Citi.

Okay. Great. I guess I want to go back to just the 20% kind of bookings commentary and I guess the view of that kind of accelerating from where we're at today. Just I guess, what is it that you're seeing like gives the confidence around that picking up going into Q4 and then going into next year?

And then I guess, on the other side of that, you also the commentary around this kind of transition going from the headcount impacts to kind of driving that platform model? I'm just trying to understand, I guess, the kind of like puts and takes to kind of make that 20% happen there?

Yes. So on the on the gross bookings side. If you remember, starting in September of last year, we started to communicate that the pipeline was starting to grow. And that has grown even right through the month of October. Every month, we continue to see progress on the size of the opportunities and the brands that we want to be doing business with. That's what's driving that growth is the conversations that our people are engaging within customers as well as a great work that our marketing team is doing in the marketplace.

So you watch that and you can see how it's progressing through the stages of sales. And so that's what gives us the confidence of what we expect to see in the fourth quarter and then what we're seeing heading into next year.

Remember, it takes a good 10, 12 months for stuff in the mega enterprise space, the enterprise space to make its way to what we do in the pipeline compared to the mid-markets, maybe 4 to 6 months. And so everything we would have expected -- or we're trying to drive, excuse me, not expected, from the quality of that pipeline, from the customers we're engaging with, the partners that we're pursuing those opportunities with and the level of engagement from those customers will give us a much higher degree of confidence as we work our way through, and we've seen the acceleration of gross bookings throughout the course of the year and now beginning to really see that pick up in the fourth quarter.

And when you start to then look at the beginning, or into next year, you can see the pipeline that started in January, working its way right up through the end of October continuing to mature its way through. And so that is what gives us confidence because we have enough pipeline to deliver what we've just said around an increase in the gross bookings. So that's the first piece. And hopefully, that's responsive to your question.

The second piece is there was a lot of work that we had to do to reposition BlackLine to get to become a $1 billion company. I would say that when I look back with where the infrastructure was, it was probably better suited for a $250 million company than somebody trying to get to $1 billion. And so all the things that have taken place in go-to-market in the G&A part of the business and the product and tech, that has been being worked on through multiple angles, really culminating for where we are today and the ability to move forward with much more operating leverage in the business going forward.

And so it's just the investments you would make that accelerate, make it easier for our people to conduct their jobs and we are seeing the increases in productivity. I'm thrilled to see a 30% increase in productivity from a quota-carrying rep. And I think Stuart and his team are just getting started on that as we move forward. The things that Jeremy Young and his team are doing about productivity from our engineers is phenomenal.

And so we're seeing us taking advantage of revamping our processes, using technology as well as the change management we need to drive in the organization. So we feel pretty comfortable that we're going to be able to decouple revenue growth by adding heads all the time to drive that revenue. If we don't need to do that as we scale out the business. It doesn't mean we won't add quota-carrying wraps, doesn't mean that we won't add product and tech professionals as appropriate, but it's not going to be that high correlation that you would have seen from BlackLine previously. And I think that's where we see, again, the opportunity to both accelerate top line growth as well as accelerate bottom line performance.

Okay. That's great to hear. And then maybe to follow up on past question on just the next year kind of view. I guess appreciate saying that 33% number. I guess maybe asked a little bit differently, like if I'm looking at where consensus numbers are for next year, I think it's at high 8%, almost 9% growth. Is that the right ballpark in terms of how you're thinking about now? Or how should we maybe think about the mix of growth and margin to get to that 33% number?

I think you're largely thinking about it correctly. But obviously, we're -- our target of a Rule of 33 for 2026 is our minimum expectation in terms of what we're going to achieve next year. So yes, we're aware that the consensus number is 8.8%. We do have confidence in our growth profile for next year and our ability to achieve at least the Rule 33.

And I show our next question comes from the line of Jake Roberge from William Blair.

Great to hear about the pipeline strength, but can you give us some more color on what you're seeing with close rates and win rates, just given the divergence between pipeline, gross bookings and then also ARR growth would just be helpful to understand what you're seeing on that front.

Yes. Look, I think our win rate is probably up about percentage points from where it was. So if -- and I'm just going to use a number, if it was 20%. Now you could look at it maybe 22%, right? Those are lower than they actually are, but just using it that way. So we see that uptick and close in win rates. And we can tell we're taking share from somebody out in the marketplace. And so that has been very encouraging. And we expect that, that is going to continue, if not accelerate even a little bit more, just again, given all the things that the responsiveness we're getting from our customers around the platform pricing, understanding better what Studio360 really is all about and then all the work that the team has done around very AI.

It's sometimes hard for me to process the amount of change that we've driven into the company last year and this year, just on the product and tech side. It's 1 thing to sell that into the marketplace -- delivered to the marketplace, all of the things to get your own people enabled on it, to understand it, buy into it, get comfortable with it and go out and tell that story. And again, we're seeing that our team is getting better and better at articulating that value proposition and engaging in conversations at a higher level in a broader as well as deeper way. And so that's what we're seeing. I don't know, Patrick, anything you want to add on particular numbers, but that's what's going on in the business right now.

And I show our next question comes from the line of Koji Ikeda from Bank of America. Colin.

Sorry about that, I was on mute. So I totally appreciate right before the Q&A that you don't comment on media speculation. And I really do appreciate that level setting. And so -- but I do think it's important to ask, and I wanted to ask about how you're thinking about driving shareholder value from here. Whatever you can talk about from that lens would be really helpful, because I look at the third quarter growth, I look at the profitability, but balance against the duration adjusted billings growth of 7%. But then really, it sounds like bookings is having some good momentum, too. So whatever you could share on how you're thinking about driving shareholder value would be really helpful.

Look, Koji, I think we're all fixated and focused on that every day, and I appreciate that you're not going to ask me about the market rumors. I think we meet with the Board on a regular basis. The Board is well aware of our responsibilities, fiduciary responsibilities to drive shareholder value and that's what we're trying to do by reaccelerating growth the way we've talked about it, driving bottom line performance, returning cash to shareholders. Those are the things that are within our control that we are executing every day. And we feel really good about that.

And no one's asked me yet about AI, so hopefully, somebody will and why that's -- we don't view that as a threat to our business because I think that's the other thing that's held the share price down a little bit. I know certainly, when I talk to investors and analysts, they're always saying, "Well, isn't an AI going to put you out of business?"

And so Koji, as I answer, so I'm going to try to do it in 2 parts. I think we're doing everything we can. We're doing it even quicker now because things are finally converged on getting the bookings machine going, really dealing with the CNA challenge and managing expenses.

On the AI side, where we seem to have been lumped in with everybody else and taking our lumps from that, we said in the prepared remarks, we believe we have 2 strong parts that reinforce and widen the moat as we operate around AI. First, we are viewed by our customers, but also by the world's leading accounting and auditing firms as well as the implementation partners as a very safe, reliable, trustworthy pair of hands.

As Patrick says all the time, 95% right in accounting is 100% wrong. So we understand that responsibility clearly and has been in our DNA since the founding of the company. Actually, even earlier today, I had a meeting with the leadership of one of the most critical bodies that works with companies, auditing firms and regulators, and the topic was about the role of AI in accounting and auditing because we want to make sure we're staying very closely aligned with the latest thinking and even shaping the thinking of what policies and guidance will be as AI makes its way forward.

The second piece that we talked about was the data that we have. And we are sitting on a information that we are really just beginning to use and our customers are beginning to see the power of that information. Interestingly, as we talk with finance teams and IT teams, 2 things are generally cropping up: First is these companies seem to be interested in buying proven solutions rather than taking a chance on less established brands as it relates to the financial close and consolidation; and second, and this is important is the IT team and their initiatives -- AI initiatives seem focused more on their bigger business opportunities that could have an impact for their companies, and it is not centered on financial close and reporting as our priority. In fact, we're aware of a paper that's going to come out next week that's sort of just going to emphasize that, and it wasn't a paper, by the way, created by us.

So the key for us as we move forward with AI is going to be able to provide AI solutions that remain reliable, transparent, auditable as well as cost effective for our customers. Now one other data point that I would just share with you that is worth noting. Our roster of customers includes the world's leading technology companies. We have a who's who, it's incredible. And these companies are engaging with us on what we can do for them with AI. Even though they're selling AI out in the marketplace, the place they are not -- they don't seem to be interested in selling AI is in financial close and reporting. And so while there's no guarantee that they're going to use BlackLine AI, it does seem to support the statements I made above that their priorities are elsewhere, and they have an interest in what we're doing. And I think if we can convince the market that there is different pockets of who are going to be the winners and losers in the AI war, then we feel like we're going to be a winner in that. And hopefully, we'll get some pop out of that for our share price.

And again, on these conversations that I'm having with the various bodies that oversee public companies, auditors and the like, the regulation is going to take a really long time to get going. And so if anybody thinks that publicly traded companies and no matter what market they're operating in, are going to go do something really crazy around the financial close and consolidation and what they're willing to sign off on for a rep letter and everything else and in what they're communicating to the capital markets, we just don't see it happening anytime soon. And we see that we are really well positioned for the conversations that the customers who trust us and understand what we're doing. And so I think for us, we look at this as a real positive, but we have to obviously show that to the market.

And I show our next question comes from the line of Terry Tillman with Truist Securities.

This is Dominique Manansala on for Terry. So just considering the federal motion of early and FedRAMP unlocks future opportunity, how does adoption typically sequence here? Do you expect it to expand horizontally into additional agencies or more so very within a single agency into workloads like intercompany or impose to cash?

And on top of that, are there specific things that show in time to live once FedRAMP has achieved like maybe a shared service model or a preexisting or preexisting footprint?

Yes. It's a really good question, Dominique. And I think the answer to the first part of the question is both. What we're seeing is, like, for example, with the DOJ win that we had, I mean, that is now available to multiple agencies where they can -- within the DOJ, I forgot how many there are, but there are quite a few that have access and a number of them are now looking at what we have to offer. But I think the other thing that's been interesting is being able now to have more conversations across different federal agencies where there's a keen interest in what a BlackLine can offer.

And I think some of the very interesting conversations earlier on for what I would have argued were sort of our more traditional financial close capabilities around REX and matching and journals but I never think of the federal government as an intercompany opportunity. But interestingly, it has proven to be an intercompany opportunity because of all the interagency building and activity that goes on. So we're seeing plenty of opportunities very quickly across the federal space and even picking up now in the state space as well.

So I think we sit here we're very confident that based on the feedback, BlackLine is a really terrific fit for the federal government space. The ability for to deliver automation, control, auditability for these agencies is really incredibly important to them. And given the pressure on the federal workforce, the opportunity for what BlackLine can do seems to be resonating very, very well as we're pursuing that marketplace.

Great. That's helpful. And then just as a follow-up, in building an elite partner group and then being selective in where you invest or enablement dollars, how do you determine which partners get priority here? Is it -- does it influence on transformational deal formation, industry specialization or maybe contribution to source pipeline?

It's a couple of different things. So obviously, if you think about many of the partners that we work with, they often have dedicated teams that are almost sitting in the office of the CFO and Controller. So we try to work with those that have the strongest brand permission in those customers. We try not to sole source things. We tend to -- if a customer asks us for recommendation, we try to provide them at least 3 names, typically 3 names of partners that we work with, and we try to match that up with the organization's preference for their own customers.

But again, we work with a sort of a who's who list, but it's it's their permission in the space, it's their industry capabilities. If they've made the investments to really deepen their capabilities around certain products within BlackLine. So we've seen a real uptick in our critical partners trying to learn and understand even more about intercompany our invoice to cash solution. And so the better equipped they are for those, the higher the likelihood that we are to make a recommendation of them as at least one potential player in any opportunity. So that's sort of how it's worked so far.

I will say it's a lot easier with a smaller list of partners to navigate than the dog's breakfast of partners we had previously. And I think that those deeper relationships are certainly opening up where those partners are that much more confident to recommend BlackLine. I think we have seen a real breaking apart of the partners sort of saying, well, you could pick this provider or you could pick that one with a more firm BlackLine is the best at this and here's why we would recommend you go with them versus someone else?

And I'm sure our last question in the queue comes from the line of Adam Hotchkiss from Goldman Sachs.

I'll keep it to one quick one. I just wanted to ask on the 10- to 12-month sales cycles you mentioned, Owen. Obviously, that makes us given the size of some of these opportunities. But what are you doing from the perspective of trying to automate some of the implementation work in order to lower sales cycles? And do you have any sense for how quickly and by what magnitude do you think you can reduce time and cost of implementation for customers would be really helpful to get some context.

Yes. Adam, that's a great question because, look, the CFO has a project and he's got 2 that can deliver 20% return just making it up, and one is in the office of CFO and one's on sales, they're going to pick sales all the time. So we have to find ways to deliver greater value even more quickly. So over the last sort of -- when Therese and I stepped into the role, we changed out pretty much all of the leadership team of -- on our professional services side. We've changed a lot of our customer success leadership, all with the idea of trying to drive greater implementation, greater optimization. And that was sort of just revamping the way we do things, right? Just being crisper, cleaner of how you go about it.

In the last 6, 8 months, 9 months, whatever it is at this point in time. The next phase of that was then how do you take all the lessons and experiences from all these implementations we've done, all these optimizations we've done by industry, by size of company, by workflow to then say, "Hey, here is a quicker, better way we can help you do this." We will be making that available to our partners to use. We'll be making that available to our customers to use because, again, what we want to do is drive that value for our customers that much faster.

So you heard us talk about how many more go-lives we've had sequentially as well as just year-over-year, but critically, the time to get those implementations is continuing to drop. And I'll have a better answer for you in February by how much we think that's going to drop, but it will not be an insignificant cutoff of time that goes from sort of when the customer signs the contract to when they go live, so they begin to really optimize what we're doing with them.

That concludes our Q&A session. At this time, I'd like to turn the call back over to Owen Ryan, CEO, for closing remarks.

So thank you all for joining the call tonight. Sorry about the little bit of technology glitches at the beginning, but we really do appreciate your interest in following BlackLine. Look forward to continuing to talk with you, share more about our journey and how we're going to make the plans that we've committed to you. Everybody, have a great night. Take care.

Thank you. Thank you for attending today's conference call. This concludes the program. You may all disconnect.