BlackLine, Inc. (BL) Q4 FY2025 Earnings Call Transcript & Summary

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.