BlackLine's (NASDAQ:BL) Posts Q3 Sales In Line With Estimates But Quarterly Guidance Underwhelms
Accounting automation software maker Blackline (NASDAQ:BL) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 12.2% year on year to $150.7 million. The company also expects next quarter's revenue to be around $154 million, slightly below analysts' estimates. Turning to EPS, BlackLine made a non-GAAP profit of $0.51 per share, improving from its profit of $0.21 per share in the same quarter last year.
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BlackLine (BL) Q3 FY2023 Highlights:
Revenue: $150.7 million vs analyst estimates of $149.9 million (small beat)
EPS (non-GAAP): $0.51 vs analyst estimates of $0.35 (47.1% beat)
Revenue Guidance for Q4 2023 is $154 million at the midpoint, below analyst estimates of $155 million
Free Cash Flow of $31.4 million, up 74.9% from the previous quarter
Net Revenue Retention Rate: 105%, in line with the previous quarter
Customers: 4,368, up from 4,279 in the previous quarter
Gross Margin (GAAP): 75.6%, in line with the same quarter last year
“This was a busy quarter for BlackLine marked by solid financial results and progress against key initiatives,” said Owen Ryan, co-CEO of BlackLine.
Started in 2001 by software engineer Therese Tucker, one of the very few women founders who took their companies public, BlackLine (NASDAQ:BL) provides software for organizations to automate accounting and finance tasks.
Tax Software
The demand for easy to use, integrated cloud based finance software that integrates tax and accounting operations continues to rise in tandem with the difficulty workers find trying to use existing accounting tools like spreadsheets given the growing volume of finance data littered across a multitude of enterprise applications. A related demand driver is the secular increase of e-commerce and rising adoption of modern point of sales and payments platforms which easily integrate with backend financial software.
Sales Growth
As you can see below, BlackLine's revenue growth has been solid over the last two years, growing from $109.4 million in Q3 FY2021 to $150.7 million this quarter.
This quarter, BlackLine's quarterly revenue was once again up 12.2% year on year. We can see that BlackLine's revenue increased by $6.13 million in Q3, up from $5.59 million in Q2 2023. While we've no doubt some investors were looking for higher growth, it's good to see that quarterly revenue is re-accelerating.
Next quarter's guidance suggests that BlackLine is expecting revenue to grow 10% year on year to $154 million, slowing down from the 21.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.7% over the next 12 months before the earnings results announcement.
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Product Success
One of the best parts about the software-as-a-service business model (and a reason why SaaS companies trade at such high valuation multiples) is that customers typically spend more on a company's products and services over time.
BlackLine's net revenue retention rate, a key performance metric measuring how much money existing customers from a year ago are spending today, was 105% in Q3. This means that even if BlackLine didn't win any new customers over the last 12 months, it would've grown its revenue by 5%.
Despite falling over the last year, BlackLine still has an adequate net retention rate, showing us that it generally keeps customers but lags behind the best SaaS businesses, which routinely post net retention rates of 120%+.
Key Takeaways from BlackLine's Q3 Results
With a market capitalization of $2.93 billion, BlackLine is among smaller companies, but its $1.16 billion cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.
We were impressed by BlackLine's strong growth in customers this quarter. We were also glad its gross margin improved. On the other hand, its revenue guidance for next quarter underwhelmed. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is up 2.2% after reporting and currently trades at $52 per share.
So should you invest in BlackLine right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
