Summary of Conference Call Notes Industry Overview - **Industry**: Application Software, specifically focusing on Software as a Service (SaaS) in North America - **2025 Performance**: Application SaaS underperformed due to muted revenue growth, limited upward estimate revisions, and multiple compression driven by AI-related concerns. The valuation discount on application SaaS relative to broader software increased to approximately 37% from 20% a year ago [3][7][21]. Key Insights - **AI Concerns**: Peak AI fears were noted in 2025, leading to a shift in investor sentiment. Companies emphasized competitive advantages such as proprietary data and large installed bases but struggled to improve investor confidence [3][23]. - **Bull Case for 2026**: The bull case hinges on application software becoming the primary delivery mechanism for AI capabilities, potentially expanding the total addressable market and improving growth trajectories. However, the lack of clear growth inflection in 2025 left many vendors perceived as disrupted by AI [3][23][35]. - **CIO Survey Insights**: A survey indicated that 19% of CIOs operationalizing AI/ML technologies view application vendors as primary partners, an increase from 13% in the previous quarter. This suggests a shift in perception towards application software as a vehicle for AI functionalities [26][29]. Investment Recommendations - **Selective Approach**: A selective investment strategy is recommended, favoring companies with strong positioning in the "AI Success Framework" and idiosyncratic growth stories. Preferred companies include HUBS, KVYO, WIX, AMPL, BL, DSGX, and NAVN [2][7][52]. - **Price Target Adjustments**: Price targets for several companies were updated, reflecting changes in growth outlooks and market conditions. For example, HUBS was adjusted to $577, while KVYO was set at $42 [5][54]. Risks and Considerations - **AI Risks**: The report outlines three core areas of AI-related risks: DIY risk, start-up risk, and seat-based model risk. Evidence suggests that fears regarding these risks may be overstated, but ongoing monitoring is necessary [24][26][27]. - **Cyclical Headwinds**: The optimization cycle that began in 2022 is largely digested, with stabilization in key performance indicators like ARR and billings growth. However, broad-based positive spending revisions remain absent, necessitating a cautious approach [35][36]. - **2026 Spending Growth**: Software is expected to see modest growth in spending, projected at 3.8%, compared to declines in hardware and communications sectors. This indicates a relatively healthier positioning for software in IT spending plans [43][44]. Conclusion - **Outlook for 2026**: The outlook for application SaaS in 2026 is cautiously optimistic, with potential for improved sentiment as AI risks are reassessed and growth trajectories begin to stabilize. However, the absence of broad-based positive revisions in spending necessitates a selective investment approach [2][35][52].

Core Viewpoint - Investors are evaluating Oddity Tech (ODD) and BlackLine (BL) to determine which stock offers better value opportunities in the Internet - Software sector [1] Group 1: Zacks Rank and Earnings Estimates - Oddity Tech has a Zacks Rank of 1 (Strong Buy), indicating a positive earnings outlook, while BlackLine has a Zacks Rank of 3 (Hold) [3] - The Zacks Rank emphasizes companies with positive earnings estimate revisions, suggesting that ODD's earnings outlook is improving more significantly than BL's [3] Group 2: Value Metrics - ODD has a forward P/E ratio of 14.54, compared to BL's forward P/E of 24.52, indicating that ODD may be undervalued relative to BL [5] - The PEG ratio for ODD is 1.22, while BL's PEG ratio is significantly higher at 4.98, suggesting ODD has better growth potential relative to its price [5] - ODD's P/B ratio is 5.15, while BL's P/B ratio is 10.84, further indicating that ODD is more attractively valued [6] Group 3: Overall Value Grades - ODD has received a Value grade of B, while BL has a Value grade of D, reinforcing the view that ODD is the more favorable investment option for value investors [6]

Core Viewpoint - Activist investor Engaged Capital is initiating a proxy fight to appoint four new outside directors at BlackLine, emphasizing the need for fresh perspectives in the boardroom to enhance strategic options [1] Group 1: Investor Actions - Engaged Capital is advocating for a change in BlackLine's board composition to improve governance and strategic direction [1] - The investor believes that the current board lacks the necessary expertise to navigate the company's future challenges [1] Group 2: Company Background - BlackLine is a software maker that specializes in financial automation solutions, indicating its focus on technology-driven financial processes [1] - The company may face challenges in adapting to evolving market demands without new leadership perspectives [1]

Core Insights - Tom Unterman intends to retire and will not seek re-election to the BlackLine Board of Directors at the upcoming Annual Meeting in May 2026, having served since 2010 [1][2] - Unterman's contributions have been recognized as invaluable, providing strategic oversight and guidance that helped position BlackLine as a leader in the Office of the CFO [2] - The Board of Directors plans to reduce its size to 11 members following the 2026 Annual Meeting [1][2] Company Overview - BlackLine is a platform designed for the Office of the CFO, focusing on digital finance transformation by enhancing financial operations through automation and intelligence [3] - The company utilizes the Studio360 platform to unify data, streamline processes, and provide real-time insights, supported by AI capabilities [3] - BlackLine has over 4,400 customers across various industries, emphasizing its collaborative approach and commitment to innovation [4]

Core Insights - BlackLine, Inc. has acquired WiseLayer to enhance its AI-powered finance and accounting platform, aiming to automate complex finance processes [1][2] - The integration of WiseLayer's AI agents into BlackLine's Verity™ suite will enable customers to automate challenging tasks such as accruals and payroll accounting, improving efficiency and accuracy [2][3] Company Strategy - BlackLine's CEO, Owen Ryan, emphasized the commitment to building an intelligent platform for the Office of the CFO, highlighting the added capabilities and value from WiseLayer's technology [3] - WiseLayer's co-founders expressed excitement about scaling their technology through BlackLine's established platform, which is trusted by numerous leading companies [3] Market Position - The acquisition positions BlackLine to further solidify its leadership in the automation of finance and accounting processes, allowing finance teams to focus on strategic insights rather than manual tasks [2][3] - BlackLine has reaffirmed its guidance for the fourth quarter and full year of 2025, indicating confidence in its operational performance post-acquisition [3]

Core Insights - BlackLine, Inc. has expanded its global cloud footprint to Saudi Arabia, partnering with Google Cloud Platform to offer a locally hosted cloud region [1][2] - The new deployment provides a secure environment that meets local data residency and cybersecurity requirements, aligning with Saudi Arabia's regulatory standards [2][3] - This expansion positions BlackLine to support Saudi enterprises in their economic diversification and modernization initiatives, enhancing their financial operations [3][6] Company Overview - BlackLine is a platform designed for the Office of the CFO, focusing on digital finance transformation through accurate and efficient financial operations [7][8] - The company’s solutions are ERP-agnostic and include partnerships with key players like SAP, EY, and Deloitte, which enhance local implementation and support [4][5] - BlackLine's technology, including the Studio360 platform and Verity AI suite, enables organizations to unify data, automate processes, and gain real-time visibility [5][7] Market Positioning - The expansion into Saudi Arabia reflects BlackLine's commitment to meeting customer needs in regions with stringent data residency requirements [5][6] - The company aims to inspire and guide digital finance transformation for organizations globally, leveraging its strong partner ecosystem to enhance service delivery [6][8]

Core Insights - BlackLine, Inc. actively engages with its stockholders, having met with Engaged Capital seven times in the past 12 months, demonstrating a commitment to constructive dialogue with all shareholders [1] Company Overview - BlackLine (Nasdaq: BL) is a platform designed for the Office of the CFO, focusing on digital finance transformation by providing accurate, efficient, and intelligent financial operations [2] - The company utilizes the Studio360 platform to unify data, streamline processes, and deliver real-time insights through automation and AI capabilities powered by Verity [2] Customer Base and Innovation - BlackLine has over 4,400 customers across various industries, indicating a broad market presence and a collaborative approach to innovation [3]

Core Viewpoint - Engaged Capital has submitted a demand to BlackLine, Inc. to inspect records related to the Board's handling of acquisition offers, particularly a $66 per share offer from SAP, citing concerns over the Board's stewardship and lack of engagement with shareholders [1][2][3]. Group 1: Demand for Records - Engaged Capital is seeking access to the Board and Strategic Committee records concerning all inbound acquisition interests, including the reported $66 per share offer from SAP SE, which represents an 18% premium over BlackLine's stock price at the time of the offer [1][3]. - The demand is made under Section 220 of the Delaware General Corporation Law, allowing stockholders to inspect company records for a proper purpose [9][11]. - Engaged Capital aims to evaluate whether to nominate director candidates at the 2026 Annual Meeting based on the findings from the requested records [14]. Group 2: Concerns Over Board Performance - Engaged Capital has expressed concerns regarding BlackLine's poor stockholder engagement and its underperformance compared to software peers, questioning the Board's oversight of strategic opportunities [2][8]. - The lack of transparency regarding the Strategic Committee's formation, purpose, and authority has raised doubts about the Board's management of strategic processes [8][12]. - The Board's rejection of SAP's acquisition offer, despite its substantial value, has been highlighted as a significant concern, indicating potential mismanagement [3][8]. Group 3: Strategic Committee Insights - The Strategic Committee has been in place for over a year, but details about its formation and activities remain unclear, leading to skepticism about its effectiveness [6][8]. - The current members of the Strategic Committee are noted to be Class I directors whose terms will expire at the 2026 Annual Meeting, which may influence future governance decisions [6][14]. - Engaged Capital's demand includes specific requests for documentation related to the Strategic Committee's evaluations and communications regarding acquisition offers [12][15].

Core Insights - BlackLine met Wall Street's revenue expectations for Q3 CY2025, reporting a 7.5% year-on-year sales increase to $178.3 million, with non-GAAP profit of $0.51 per share aligning with analyst estimates [1][3][6] - The company anticipates Q4 revenue around $183 million, consistent with analyst forecasts [1][6] Financial Performance - Revenue: $178.3 million, slightly above analyst estimates of $178.1 million, reflecting a 7.5% year-on-year growth [6] - Adjusted EPS: $0.51, matching analyst expectations [6] - Adjusted Operating Income: $38.14 million, exceeding analyst estimates of $36.75 million, with a 21.4% margin [6] - Revenue Guidance for Q4 CY2025 is set at $183 million, aligning with analyst expectations [6] - Management lowered full-year Adjusted EPS guidance to $2.11, indicating a 3.7% decrease [6] - Operating Margin: 4.3%, consistent with the same quarter last year [6] - Customers: 4,424, a decrease from 4,451 in the previous quarter [6] - Net Revenue Retention Rate: 103%, down from 105% in the previous quarter [6] - Annual Recurring Revenue: $685 million, slightly below analyst estimates of $693 million, with a 7.4% year-on-year growth [6] - Billings: $161.7 million at quarter end, reflecting a 4.4% year-on-year increase [6] - Market Capitalization: $3.32 billion [6] Management Commentary - Management highlighted strong new customer acquisitions and larger deal sizes, with new customer bookings up 45% and average new deal size more than doubling [3][4] - The company is transitioning to a platform-based pricing model and anticipates adoption of its Verity AI suite, aiming for accelerating revenue growth and margin expansion [4][5] - Management expressed caution regarding near-term user attrition and the time required for customers to fully adopt new pricing and AI-driven solutions [4][5]

Financial Performance - For the quarter ended September 30, 2025, the company reported revenues of $178.3 million, an increase from $165.9 million in the same quarter of 2024[114]. - For the nine months ended September 30, 2025, revenues totaled $517.2 million, compared to $483.9 million for the same period in 2024[115]. - Total revenues for the quarter ended September 30, 2025, were $178.29 million, representing a 7% increase from $165.91 million in the same quarter of 2024[135]. - Subscription and support revenues increased by 7% to $168.21 million for the quarter ended September 30, 2025, compared to $157.01 million in 2024[135]. - The company generated net income attributable to BlackLine, Inc. of $5.3 million for the quarter ended September 30, 2025, down from $17.2 million in the same quarter of 2024[114]. - Non-GAAP net income attributable to BlackLine for the quarter ended September 30, 2025, was $37.59 million, compared to $44.43 million for the same period in 2024, reflecting a decrease of 15.5%[132]. Customer Metrics - As of September 30, 2025, the company had 385,336 individual users across 4,424 customers[105]. - The number of customers decreased slightly from 4,451 in June 2025 to 4,424 by September 30, 2025[120]. - The total number of customers as of September 30, 2025, was 4,424, remaining relatively flat compared to 4,433 in 2024[136]. - The number of users decreased by 3% to 385,336 as of September 30, 2025, down from 397,095 in 2024, primarily due to a strategic initiative to migrate customers to new pricing models[136]. Profitability and Margins - The GAAP gross profit for the quarter ended September 30, 2025, was $133.9 million, with a gross margin of 75.1%[127]. - Non-GAAP gross profit for the same quarter was $141.5 million, resulting in a non-GAAP gross margin of 79.4%[127]. - The gross profit for the quarter ended September 30, 2025, was $133.90 million, with a gross margin of 75.1%[134]. - Non-GAAP operating income for the quarter ended September 30, 2025, was $38.14 million, compared to $37.62 million in the same quarter of 2024, indicating a slight increase of 1.4%[132]. Expenses and Costs - Sales and marketing expenses for the quarter ended September 30, 2025, were $67.49 million, an increase of 8% from $62.22 million in the same quarter of 2024[139]. - The total cost of revenues for the quarter ended September 30, 2025, was $44.39 million, an increase of 8% from $41.11 million in 2024[137]. - Research and development expenses increased by $1.682 million (7%) for the quarter ended September 30, 2025, compared to the same quarter in 2024, and by $4.635 million (6%) for the nine months ended September 30, 2025, compared to the same period in 2024[140][143]. - General and administrative expenses decreased by $3.631 million (4%) for the nine months ended September 30, 2025, compared to the same period in 2024, while the percentage of total revenues decreased from 18.5% to 16.6%[143]. - Restructuring costs amounted to $2.267 million for the quarter and $8.610 million for the nine months ended September 30, 2025, representing a significant increase of 398% compared to the same period in 2024[144][147]. Cash and Liquidity - As of September 30, 2025, the company had $804.2 million in cash and cash equivalents and marketable securities, indicating strong liquidity[156]. - The company believes its existing cash and cash equivalents, along with cash from operations, will be sufficient to meet its working capital needs for at least the next 12 months[157]. - The company had cash and cash equivalents and marketable securities of $804.2 million at September 30, 2025[182]. - The company has a total buyback capacity of $198.2 million remaining under its stock repurchase program as of September 30, 2025[167]. Debt and Obligations - The company had $905.2 million in aggregate principal amount of convertible senior notes outstanding as of September 30, 2025, with $230.2 million due in March 2026[158]. - The 2029 Capped Calls cover approximately 9.9 million shares of common stock, with an initial strike price of $68.47 per share and an initial cap price of $92.17 per share[159]. - The company has $192 million in purchase obligations, with $61 million payable within the next 12 months[162]. - Unrecognized tax liabilities amount to $19.7 million, with a high degree of uncertainty regarding future cash outflows[163]. Market and Economic Conditions - The company is exposed to foreign currency risks, with a potential impact of approximately $4.4 million on cash balances due to a hypothetical 10% change in the value of the U.S. Dollar relative to foreign currencies[186]. - The company initiated a hedging program to manage cash fluctuations in the British Pound and Euro using foreign currency forward contracts[187]. - The hedging program aims to reduce the impact of currency exchange rate movements, but does not fully eliminate the risks associated with foreign currency fluctuations[188]. - Inflationary pressures may affect customers' purchasing power, potentially leading to delays or reductions in investment in software solutions[189]. - The company has not yet experienced a material inflationary impact on customer engagement or its own operations, but continues to monitor macroeconomic conditions closely[189]. Share Repurchase - The company repurchased approximately 2.1 million shares for $113.0 million during the quarter ended September 30, 2025, and 3.9 million shares for $201.8 million during the nine months ended September 30, 2025[167].