SOPA Images/LightRocket via Getty Images
SOPA Images/LightRocket via Getty Images
BlackLine, Inc. (NASDAQ:BL) shares are rated as a Buy.
I previously outlined the major growth drivers for BlackLine in my August 7, 2023 write-up. In the current article, the focus is on BL's latest quarterly financial performance and the company's business outlook.
BlackLine delivered a significant +25% earnings beat for Q4 2023. BL's cautious full-year fiscal 2024 guidance implies that there is a high likelihood of positive surprises going forward. The company's strong Q1 2024 guidance indicates that BL's growth momentum in Q4 2023 is most probably going to be sustained for the current year. As such, I see BlackLine's shares re-rating in the future when the company lifts its FY 2024 guidance in the quarters that follow.
BlackLine disclosed the company's financial results for the fourth quarter of the prior year with a press release issued on February 13, 2024, after the market closed.
The company's revenue expanded by +11% YoY from $140.0 million in Q4 2022 to $155.7 million for Q4 2023, which turned out to be +1% higher than Wall Street's consensus top-line projection of $154.0 million. At its recent fourth quarter earnings call, BL credited the top-line beat to "continued success with partners including our SolEx relationship", and "consistent sales performance from our mid-market teams landing some larger customers."
Earlier, I mentioned in my August 2023 article that "BlackLine's partnerships are a key driver", which included the SolEx or SAP (SAP) Solution Extensions partnership that offers "substantial upselling opportunities."
Separately, BL's Financial Reporting Analytics or FRA offering has become popular with mid-market businesses that usually use spreadsheets for their financial reporting as per its management comments at the latest quarterly call. On its corporate blog, BlackLine highlights that FRA "modernizes the often spreadsheet-heavy process (my emphasis) of analyzing information at the financial statement line-item level" by "enabling companies to view pre-consolidation data and assign, perform, and document fluctuations in the cloud."
BL achieved an impressive +25% earnings beat in the most recent quarter. Its non-GAAP adjusted EPS jumped by +97% from $0.35 for Q4 2022 to $0.69 in Q4 2023. The market's consensus Q4 2023 bottom-line forecast for BlackLine prior to its results' announcement was a much lower $0.55.
Positive operating leverage effects and cost optimization helped BlackLine to register strong earnings growth for the fourth quarter of 2023. BL emphasized in its Q4 2023 earnings press release that there is "powerful operating leverage embedded in our model." Also, BlackLine attributed its profitability improvement for the latest quarter to "sales force efficiency and proactive expense management." Specifically, the company's normalized operating margin improved significantly by +12.0 percentage points YoY to 24.8% in Q4 2023.
In the subsequent section of this article, I touch on BlackLine's financial prospects.
At the time of writing, BL's shares declined by a mid-single digit percentage during post-market trading on February 13, 2024, after reporting above-expectations fourth quarter results. In my opinion, the market might have been disappointed by BlackLine's full-year FY 2024 management guidance, which, I think, is unjustified.
As per the mid-point of BL's FY 2024 financial guidance, the company anticipates that its revenue and normalized EPS will be $643.5 million and $2.075, respectively for this fiscal year. This implies that BlackLine's top-line growth is expected to slow from +13% in FY 2023 to +9% in FY 2024. It also means that BL's expected bottom-line expansion for FY 2024 will be a modest +6%.
I think that BlackLine was too cautious in setting its FY 2024 guidance, which suggests that the company could deliver positive surprises in the current year.
BL is guiding for Q1 2024 top line and non-GAAP adjusted EPS of $155 million and $0.465, respectively, as per the mid-point of its first quarter guidance. The Q1 2024 guidance provided by BlackLine translates into favorable expectations of a +11% YoY revenue expansion and a +37% YoY earnings growth for the company in the first quarter of the new year.
At the company's Q4 2023 results briefing, an analyst from Morgan Stanley (MS) asked if the full-year FY 2024 guidance was "embedding more conservatism." In response, BlackLine acknowledged that the full-year FY 2024 guidance is "adequately conservative and pragmatic." BL also noted at the most recent quarterly earnings call that it observed "some good upticks in a few leading indicators" in Q4 2023. These positive "indicators" could have included retention rate and user count. BlackLine's "dollar-based net revenue retention rate" metric improved from 105% in Q3 2023 to 106% for Q4 2023, while its number of users grew by +5.5% YoY to 386,814 as of end-2023.
In a nutshell, BL's better-than-expected Q4 2023 results and reasonably good Q1 2024 guidance suggest that the company's actual FY 2024 performance is likely to be superior to what its current full-year guidance implies. In other words, I think that it is highly probable that BlackLine might be revising its full-year FY 2024 guidance upwards when it reports its earnings for subsequent quarters.
BlackLine's most recent quarterly earnings were way better than what the sell-side analysts had forecasted. But BL's prudent guidance for full-year FY 2024 could have been viewed in a negative light by investors.
The market is currently valuing BL at a consensus FY 2025 Enterprise Value-to-Sale or EV/S multiple of 5.4 times (source: S&P Capital IQ) or in the mid-single digit range. I think that BlackLine can warrant a higher EV/S ratio at the high-single digit level when its actual FY 2024 top-line growth surprises on the upside. My opinion is that Blackline is likely to provide positive updates relating to its FY 2024 guidance in subsequent quarters, and this might be a key re-rating catalyst for BL.