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

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 and cleared 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 pulls 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 reach 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, too. Eligible ARR on platform crossed 17%, up from 13% last quarter and current RPO, the piece we 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, governance 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. We call 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 gap 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 writes through 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 engine means that all already runs multiple autonomous close workflows simultaneously. And because the governance layer is built 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 process 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 the 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. 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 closed 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 AIUC-1 certification in September, an independent third-party standard built for AI agent security and reliability. I am proud to say we have helped 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 they 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 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 for 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. Three 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 learned quickly that a model generating suggestions cannot coordinate a full workflow the way our multi-agent architecture does with the transparency auditors require 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 of Verity because it is built on a real accounting logic and compliance. And a major healthcare company converted to platform pricing this quarter to gain full access to capabilities that are already seen work as an early adopter. 3 companies, 3 different reasons, one 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 the 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 in early adopter testing with general availability expected soon. Our rules-based matching solution already resolves most transactions automatically, but the remaining exceptions, a 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 Agentic 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, too, 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 clearest signal is 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 healthcare 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 1. 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 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 concept 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 operations 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 in 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 continued to contribute, and we see further opportunity as platform pricing and premium qualification of our Agentic offerings open 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 the 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 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 and how they fulfill those responsibilities. So for us, what's been critical is being in the room really showing, and Jeremy 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 [ look like ] today? How much more elongated is it 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 room 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 -- 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.

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 time where the deals keep on flipping. Just I guess, 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 it's 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 Stuart Van Houten 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, we're 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 is 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 a lot of cajoling 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 there -- 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. But Patrick, you're also dealing with this 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 within and agents 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 sovereignty. 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 and other federal markets, but for other countries and other regions of the world.