Waters are up here. Yeah, there's waters up here already. 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 I'm really excited to be joined by the BlackLine team here. We've got Owen Ryan, CEO, 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. Owen, Patrick, maybe for the investors that are less familiar with the BlackLine story, give us a quick overview of the business, you know, what are some of your core products, your core customers? Our core products are really financial closing consolidation and then Invoice-to-Cash. And that's all run on a platform called Studio 360. We've been in business, it'll be 25 years or 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, you know, 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 four of those constituencies as we move forward. Got it. That's 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. From the BlackLine perspective, what do you view as your competitive moat, your key defensibility against some of these AI startups, large language model risk here? You got 20 minutes so I can give you the answer. Yeah. To all of this? Look, I think we're doing a special day in two 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. 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. You know, we. People talk about being a system of record. Yes, we are that. 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+ years, as we mentioned, of proprietary data that helps inform the decisions that our customers make. You know, as Patrick will tell you, we live in a world of complete precision. You know, 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? 'Cause 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's not correct. That's a big piece of reliability that matters for our customers. We've got 20+ 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. You know, we built the platform to be more extensible and configurable based upon feedback from customers 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. You know, you just get into sort of simple math, and I give the example of, you know, we have a customer that joins us last year. They got $65 billion of revenue. They pay BlackLine a half million dollars as a customer. Somebody walks in and says, well, we could do that for a $300,000, or whatever, you know, and name your price. Okay, do you wanna give up all the system security, reliability, the accuracy, the brand, the trust? You know, we are both like an insurance policy and assurance policy for our customers, a CFO pretty quickly goes, yeah, we're not gonna mess with that no matter what a CIO might say that he or she can do pretty quickly. I could keep going on and on and on, Chris, 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. That makes us very different and unique than other companies in the Office of the CFO. Yeah. A really mission-critical system. You need to have the 100% accuracy, the auditability, the risk compliance, all that stuff 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. Yeah. We'll, we'll tag team on it. I mean, obviously, you know, we've been working on AI for a number of years. You know, Therese, our Founder, you know, 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 wanna take out 18,000 of them. You know, probably not the nicest way to sort of communicate that, but that was sort of the messaging. We've been on that journey and, 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, you know, 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. We've done that. We released a number of things over the last year or so. 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. 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. You've lived this much more closely every day. No, I do. You know, something you touched on there, Owen, you know, let's talk about, you know, probably one of the most important things in the room, how are we monetizing all this? I think we sat in this very room last year today, you know, 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. You know, an update as to how that's going and how that fits into the bigger AI picture is very important. What we saw as proof points when we launched this model was a 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 one accountant out of California and putting two 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%-5% CPI increase or whatever is in their contract, they would find a way to reduce their license count by 3%-5%. It became a revenue neutral transaction, which is obviously not something that we wanted. 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. 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 Studio 360 to the masses. We showed it to everyone. There were thousands of individuals there, existing customers, new prospects. They were really impressed by it. The reason for that was Studio 360 brought together our four primary solutions that Owen noted earlier. Our core financial close, Invoice-to-Cash are the two largest. You also have Intercompany and Financial Reporting Analytics. Pretty much our consolidation tool. I might have lost Mike. Nevertheless, it brought a single source of truth, a single data layer in all of our solutions. That was the first captivating moment. 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 non-customers that have 40 ERPs. They're trying to do it themselves. They spend a lot of, t hey exert a lot of time and capital trying to build their own agents. What happens when they release an agent into an ecosystem of 40 ERPs? They get 40 different answers. There's the value of Studio 360 as the platform. One single source of data, one single source of truth. 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. 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. That was mostly from our existing customer base that wanted this new product, that wanted this innovation, that wanted to test it. 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 2026, giving a range of 25%-35% on our platform model, which yields at least a 10% uplift on average, at least. It's product led, which is key. This is something that the customers want. This is a pull for AI. 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. 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. By the end of 2026, at least 50% of all of our revenue and ARR will not be seat-based dependent whatsoever. It'll be eliminated. We're very excited about that. We know the industry is moving away from it. We're ahead of the curve, and by the end of this year, those seats over half of our revenue will not be at risk for seats going away. Yeah. No, you guys have definitely been quite ahead of the curve on the move away from that seat-based model towards more of a hybrid type of pricing model here. Patrick, you mentioned a little bit, you know, 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? Yep. There's three 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 into 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 four solutions was that they were in silos. They operated great, and they automated great within themselves, but they didn't talk to each other. Studio 360 eliminates that. It brings a data layer naturally flowing between our four solutions, when you're a CFO, that's what you wanna hear. You don't want four silos, you want a single source of truth. What you also wanna hear as a CIO, which are becoming more and more prominent in our buying decisions, that CIO no longer has to support four solutions, they're supporting one platform. That's key from an internal cost and effort perspective. The second monetization event is it opens up and removes encumbrances to cross-sell. Then three, what you touched on, Chris. Our agents. We have a couple 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 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 a chief accounting officer, it takes a couple quarters to do that. You gotta 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. I can release it into the entire ecosystem and let it perform for all of my transactions. Once that agent gets above a certain threshold, the, you know, giveaway threshold, and starts hitting transactional levels, we start charging for that. That's monetization event number three, which you'll start to see show up in our forward-looking metrics at the end of 2026, and appears revenue in 2027 and beyond. That is growth above just the platform price. That is predictable subscription revenue, and as they consume more, they move up those tiers. Yeah. A big concern for investors is, you know, when you move from that seat-based model to a new type of pricing model, is that really, you know, net positive? Is it net negative? Is it neutral? You all are talking about a 10% uplift here. 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? Yeah. I think it's a couple things. We can tag team on this. One is because everybody gets to use it now, right? We're not fighting that constant battle of you, right, raise the price 5%, we're gonna reduce 5% of the seats. Over the last couple of years, we have really found our innovation genes again. The amount of stuff that we're bringing out to our customers is something they really want. When they see what they can get and then when they see what's on the roadmap, 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, you know, delivering what you promise. Our customers are finding that very attractive. The cost is not really the hurdle that might be what you think it is. It's less of a battle than we had anticipated. In addition to what Owen just said, why are our customers embracing this so far? It's two things which in my mind are synonymous. It's delivery of value and it's delivery of outcomes. That's what customers ultimately pay for. They don't care what it costs to us, they care what they're willing to pay, what it's worth to them. Without compromising quality, precision, and accuracy, these agents allow accountants to be more hands off the keyboard, more efficient, faster close. Those professionals, those accounting and finance professionals internally that have so much talent, you're unlocking that talent to either scale better- Mm-hmm Potentially reduce headcount, or repurpose them to do other things within the business that are more analytical that maybe AI can't do yet. 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 those values so much more effectively and efficiently, well, you pay more for that. That's why they've embraced this new model. Yeah. 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, you know, group that, you know, basically tell her what to put into the system so that they don't pay for the additional seat. Now, because of the new model, they're able to. You figured it out, huh? Liberate it out. Like sharing a password. Yeah. A service. Yeah, yeah, exactly, my Netflix account. Although they've figured that out. Great. Let's move away from the pricing model. Owen, you came into the CEO role, you know, three years ago, you know, with a clear mission to turn the company around. Maybe for those investors who aren't familiar with the strategic changes you've been making over the past three years, what have been some of those, and what's been the net impact of those today? Look, it's hard to believe it's three years. Time goes fast when you're having fun. I think the key things that we really made a conscious series of choices on were where we wanted to play in the marketplace. We've been very clear that we wanted to move much more upmarket and get out of the lower end of the mid-market. Very focused on upper end of middle market enterprises and mega enterprises. Again, an example of how that sort of played out is we moved from 50% of the Fortune 100 to 70%. Running on BlackLine is sort of 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. Very successful in picking, you know, big places like an oil and gas industry or retail, banking, insurance. Like, we're really very focused now much more by industry. We 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. 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. We've been very clear about, you know, the execution of how we would run the business. We wanted revenue growth to far outstrip the costs 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's an expensive place to operate. No, no criticism of those of you that reside in California, but man, it's expensive. You know, moving to places like India and Poland, Romania, we're about 25% of our workforce there from just a few years ago when it was low single digits. We've made sort of all those strategic choices, but maybe more than anything else, we got back to innovating around the product. To Patrick's point before, I think we lost our way about what was most important, and that was outcomes for customers. You know, I 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. Over the long term, that is the right thing for us to go do. We've got that maniacal focus on customer success in a way that I think we had lost our direction on. Feel very good about that. 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. If we do that, keep doing that, we're gonna drive the kind of success that we want for our customers and our shareholders. Yeah. It's software as a service. Everyone focuses on the software piece- Yeah Forgets about the service piece. Yes. Good point. 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. You're guiding next year to an acceleration on top line, 9%-10%. Curious, what have been those key drivers that have really driven that acceleration you're seeing right now? Yeah, look, I think it's a few things. When it comes to net new logos, it's being able to demonstrate the value of Studio 360, the platform, what it can do, the interconnectedness of all the solutions that we have. It's the innovation roadmap, people are excited about that. Our partners are incredibly important to us, it's nice for us to say how good we are at what we do, it's even better when an Accenture or Deloitte or an EY or an IBM or KPMG advocate on your behalf. we're seeing sort of that. The pipeline we have, as you guys know, it's a long cycle. we see the pipeline that started to build at the end of 2024, built throughout 2025. It's still building in 2026. We saw the success of that finally closing in the fourth quarter. It gives us lots of confidence of, you know, 20%+ gross bookings sort of in this upcoming year and continuing on that path. It's, 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. 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? We're having, you know, what I feel like is pretty good success on that. Of course, we now have more to bring to them. You know, two, three 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 enabled to bring this to the market? We've got all of that kind of coming together in the right way. Again, now taking a consulting mindset to this is, as a consultant, you don't get hired for your next project unless you've done the last one really well. Our organization is 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. That's what's giving them more confidence in the capabilities and, you know, buying bigger programs with us. I think the other thing, Chris, is we've been much more selective on the customers who we wanna 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? If the answer is no, get out. We don't want them because they're not gonna be successful and stick. It's like finding the right customers with the right executive sponsorship and leadership. 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. We've had a lot of success in that regard. Those are some of the things. Yeah. You also brought forward your medium-term targets of 13%-16% total revenue growth now pointing towards 2027 versus 2028 before. What, what really gives you the confidence to do that? Can we dive in on this one? Well, you can in a second, but- Okay In one word, execution. Mm-hmm. Simple as that. You know, we had a nice strategy. Now it's execute, execute. We got a really good leadership team doing what they need to do. They work very well together. We understand what we're trying to drive. You can go through the math of it. Yeah. Yeah, no problem. Please. If you look at what we did in 2025, you know, a lot of the building blocks were put in place in 2024, and strategically, in terms of what was gonna grow this company. We entered 2025 at about a 7% growth rate. We exited 2025 based upon the metrics that you just shared there, Chris, all triangulating around 10%+ growth leading indicators. 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. It's 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. That's why when we look at the investments we made in 2025, just like we made investments in 2024 around pricing and innovation and moving up market that benefited 2025, we made investments in 2025, such as FedRAMP, more innovation around Agentic AI. Those things have not materialized yet, which is great because those are more growth levers for 2026. If we took it 7%-10% in 2025, that's how we take it from 10%-13%+ you know, going into 2027. 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 is much more opportunity in the future, much larger opportunities in the future. We pulled a few growth levers in 2025, but not all of them. Mm. That's why we expect to see compounding growth, through next year. Yeah. I want 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. Our pipeline, we've been clear about this, I think at our last investor day, with SAP has grown very nicely. You know, again, going back to November of 2024, when we sort of went through a reset in that relationship, trying to figure out 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, you know, things like that we're working on now with sort of a joint proof of concept around their Joule AI with BlackLine AI capabilities. We've definitely seen a nice large uptick in that pipeline. 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. We have been deepening that relationship with Workday. We expect that to continue to go forward. Of all the things we talked about of why BlackLine matters in the enterprise space, the mega enterprise space is, you know, our brand and reputation is really strong compared to anybody else in that regard. If you want the best choice, first choice, safe choice, only choice, you come to BlackLine when it comes to that financial close capability. You know, we're very confident, as Patrick pointed out, about, you know, where we see the growth coming from, and it will be across all of the mega ERP players. Yeah. Let's shift over to margins. Operating margin expanded to 22% in 2025 versus 19% a year ago. You're guiding to about 24% in 2026. Where do you expect to continue to get that additional operating leverage from? 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 three years was about 34%-35%. The cost of the number of people that we've added was about 2%. We 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 to ask me to approve a hire. And then if you're gonna do a hire, can we do that in a low-cost geography? We've been very thoughtful about making sure that we're walking the talk with AI. Every executive leader has specific goals that they need to achieve around their use of AI before adding people. There's certain parts of the company, like quota-carrying reps. We're not at that world where we can sell enterprise software without people going out there. You know, 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. If we need to add people before we put them in high-cost geographies, can we look at low-cost geographies? That'll drive some of the expansion, but you've got much more that you deal with on this. Yeah, 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. That's not new. You know, in 2021, we were a break-even company, and we've been evaluating this for years to get to a 24% margin already. There's definitely more opportunity in future years to continue to expand that margin. If you think about it, AI, you know, 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 a 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. 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 generate more pipeline more aggressively with the same marketing spend by augmenting it with technology and AI. We've been doing this for years. 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 in 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. 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. 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 wanna know what we're doing. 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. Then we're gonna continue to buy back shares in the marketplace. You know, 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, 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, man.