BlackLine, Inc. Common Stock 2026 Q2 Earnings Call

Good afternoon. 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 in our Form 8-K filed with the SEC today. Now, I'll turn the call over to BlackLine's Chief Executive Officer, Owen Ryan.

Eoin? 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 shaped 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. 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 five-year, eight-figure deal. Even with both sides aligned and committed to a June 30th 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 timeline 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 roadmap, 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. Everything is simply taking longer. More of these conversations have become formal build versus buy assessments. Buying is beginning to come out far ahead. That clarity does not shorten the evaluation itself. The timeline 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. 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%. Multi-year 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. To the period we have just lived through.

AI is going to be a multi-year transformation in the office of the CFO. I will walk through it in four 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 two quarters, we have had hundreds of meetings with CFOs, CAOs, and CTOs, met with capital markets regulators, accounting standard setters, and the leadership of the seven 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. Studio 360 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 one in five companies believe they have the governance to manage that scale. That is the gap Studio 360 closes in accounting and finance.

In June, we unveiled Finance Control Console, the control and governance plane 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 to an immutable audit trail, so any close can be reconstructed exactly as it happened, working alongside the deterministic rule-bound workflows underneath. That combination is what management teams, auditors, audit committees, and regulators are asking for. The deterministic engine means that all already runs multiple autonomous close workflows simultaneously. 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, why BlackLine is the long-term partner for this transformation. We hear this directly. We are in the room with the Big Four 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 in adoption, not the product. Customers are careful about trusting AI inside close critical accounting processes. Security and risk teams are getting involved earlier in the sales cycle, partly because many regulators still have not finalized guidance for AI. We are not waiting for this to resolve on its own. We expect AIUC-1 certification in September, an independent third-party standard built for AI agent security and reliability. I am proud to say we helped shape this standard as a member of the consortium. That gives customers real upfront validation about BlackLine's trustworthiness. We will go much deeper on all of this at our BeyondTheBlack conference in November. On the validation, here is 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.