BlackLine, Inc. (BL) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q3 2026 BlackLine Earnings Conference Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Matt Humphries, Senior Vice President, Investor Relations. Please go ahead.

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 Q4 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 will turn the call over to BlackLine's Chief Executive Officer, Owen Ryan. Owen?

Thank you, Matt. Good afternoon, everyone. In the third quarter, we delivered strong profitability and cash flow, continued momentum in platform adoption and important progress on BlackLine 3.0. Revenue came in at the low end of our range, and we are adjusting our full year outlook to reflect the timing of customer decisions and our professional services expectations. I will walk you through what is working, what we are building and why I am confident in where BlackLine is headed. Patrick will then take you through the quarter and our outlook in more detail. First, the numbers. Revenue grew 8.5% at the low end of our guidance range. Non-GAAP operating margin was 25.9%, up roughly 450 basis points from a year ago, and we generated $58 million of free cash flow, a 30% free cash flow margin. Let me start with what is working. Customers continue to move to our platform at a strong pace. Platform ARR is now 23% of the eligible ARR, up from 17% last quarter, keeping us well on track for our full year target of 25%. Customers are also signing larger, longer contracts. RPO grew 14% to approximately $1.1 billion and current RPO grew 10%, both ahead of revenue growth and average contract duration reached a record high. The number of customers with more than $1 million in ARR grew 18% to 98, and attrition has come down meaningfully this year as customers have moved to platform. At the upper end of the market where we lead, customers continue to choose BlackLine and commit more when they do. Average new customer deal size was up 37%, and we continue to win multiyear 7-figure relationships. This quarter, the sovereign cloud agreement I described on our last call closed as did our agreements with 2 of the 6 largest U.S. banks. We signed the largest invoice-to-cash deal in our history with one of the world's top 3 logistic companies and added a leading U.S. academic health system. Major enterprises continue to move to our platform, including one of the world's largest CRM companies and one of the world's largest oilfield service companies, and our enterprise renewal rate was healthy at above 95%. That pattern also answers a question we hear from investors. Is AI disintermediating BlackLine? The answer is no. If customers were replacing us, it would show up first in our largest accounts as churn, smaller contracts and/or shorter commitments. We are seeing the opposite, larger deals, longer commitments and strong enterprise renewals. AI is also becoming part of everyday work across our base. About 3,400 customers, roughly 90% of our active base have our embedded generative AI enabled and about 2,500, 2/3 of our active customers use it in the third quarter. Returning users grew 25% quarter-over-quarter and nearly 9 in 10 accounts using these capabilities have used them on a recurring basis. Verity Prepare, our Agentic accounts reconciliation offering has been generally available for less than 10 weeks. 1/4 of entitled customers have been using it and reviewers kept about 98% of AI suggested reconciliations without any changes. Where our growth has not yet kept pace is in turning that platform momentum into Agentic AI consumption, and we understand why. Part of it reflects the scale of what we are building. We're in the middle of the most significant platform evolution in our company's history with BlackLine 3.0, which I will describe shortly. Many customers want to see our platform and our new finance control console in action and see it work in their own environment working for a few quarters before they adopt and expand. Interest is high and customer response to what we have previewed has been overwhelmingly positive. What we are seeing is timing, not hesitation about the platform. Customers are sequencing their decisions around the launch. As BlackLine 3.0 reaches customers, we expect that interest to translate into adoption, though at a more measured pace than we originally anticipated. The other part is governance. Customers tell us consistently that their own governance frameworks and controls are not yet mature enough for them to rely on AI and accounting and finance, where accuracy is paramount. Solving that problem is at the center of our Agentic financial operations platform. And as customers put that governance in place, we are confident BlackLine will lead as adoption builds. Our customers have increasingly understood our position that to achieve the value of AI's potential, we must be able to trust the outputs. We also made important progress with SAP. We recently received approval to add platform pricing for our SolEx channel. Further, our Agentic AI products are being evaluated for SAP premium qualification, which we currently anticipate receiving shortly after year-end. We are also working closely with SAP to give our shared customers greater clarity on how our AI capabilities work together so they can move forward with confidence. SAP has been and continues to be a tremendous partner, and I believe the best days of this partnership are ahead of us. In the middle market, a smaller percentage of our business, we are tailoring our packaging and pricing to the needs of these customers and giving our teams more flexibility in how they put offerings together so customers can start with what they need most and expand from there. We continue to win customers that fit our ideal profile, and we expect these changes to improve our results over time. And we remain confident in our long-term investments in the Middle East and the public sector, where we continue to build meaningful pipeline. Patrick will cover the near-term timing of both. Next, I want to talk about what we are doing to grow and protect our franchise. First, we are concentrating our resources where we lead. That means more capacity focused on enterprise and mega accounts, along with greater commercial flexibility in the middle market, as I just described. Second, we are helping customers get more from what they already own. Many customers are not yet using everything they have bought from BlackLine. Our message is simple. The products you run today are proven and valuable, use more of them, and our AI makes them even more powerful. Our customer success teams are fully engaged, and we are embedding our own professionals with customers to accelerate time to value. Much of this work is not billable, and we see it as one of the best investments we can make in long-term retention. Later this month, we will launch our value realization program to help customers adopt a steady stream of innovation we deliver. And in the first quarter of 2027, we will introduce an AI curriculum for finance teams through BlackLine University. Third, we are running the business with discipline, and I want to thank my BlackLine colleagues for that. They have built a new BlackLine while continuing to move the existing business forward, and it shows in our results. Even with a lower revenue outlook, we expect full year operating margin to expand by roughly 200 basis points and full year free cash flow to grow approximately 20%. And fourth, we are delivering a platform that addresses the governance question I described earlier. We call it BlackLine 3.0, our Agentic AI financial operations platform. Finance teams will increasingly run on a hybrid workforce of people and AI agents. That workforce needs agents that can do real accounting work and a control layer that governs every one of them. BlackLine delivers both. Critically, that control layer operates independently of the agents themselves. It monitors their activity, guards against errors and drift, keeps a human in the loop on every judgment call and records every action in an audit trail, which is what management and auditors require. The centerpiece is our Finance Controls Console, the governance plane for every agent in finance regardless of who built it. Finance control console reaches general availability in 2 weeks, and customers we talk to are excited about it for a specific reason. It gives them something tangible to adopt AI against. It addresses directly the governance questions CFOs, CTOs, risk managers, lawyers and chief accounting officers are working through. Over time, BlackLine, our partners and our customers will build agents that monitor AI activity across the office of the CFO, including AI that runs outside BlackLine. One of our first headline use cases is the allowance for bad debt. A team of agents runs the entire process end-to-end, assessing credit risk, aging the receivables, calculating the reserve, booking the entry and reconciling the result. People set the policies, oversee the work, step in on exceptions and certify the outcome with every action recorded in an immutable audit trail. That's the shift BlackLine 3.0 enables from people doing the work to people governing an agentic workforce. And once a customer automates one process, the same approach extends to the next with the product they already own becoming the foundation for that workforce. To give an example of the magnitude of change happening inside BlackLine, we have created 15 million lines of new usable code year-to-date. This compares to the 20 million lines of code we created in our nearly first 25 years of existence and an extraordinary increase in productivity. We have built our commercial model for this new world. That is why we moved from seats to platform subscriptions and why, as BlackLine 3.0 launches, we are layering on consumption sold in outcome-based units customers already understand like reconciliations prepared and journals created. As adoption of Agentic AI grows like our generative AI has grown, our revenue is designed to accelerate with the work our agents deliver. And we continue to innovate. And Beyond the Black, we will unveil several new products, significant platform upgrades and many of the features our customers have asked for, along with how leading global firms are working with us through our design partner program to build on our platform rather than around it. To close, I want to reinforce 3 things. First, our foundation is strong. Customers are moving to our platform, committing for longer and our largest customers continue to choose BlackLine. Second, we have built BlackLine 3.0 while running the current business, and we have done it with discipline on margins and cash. Third, we are confident in what comes next. Customers like what they are seeing in BlackLine 3.0. And as they put governance in place and move from evaluation to adoption, I believe BlackLine will be in the strongest position in our history to lead Agentic financial operations. We will show you all this and much more Beyond the Black. With that, let me turn it over to Patrick.

Thank you, Owen. Our third quarter results reflect strong profitability and cash generation with top line growth below our expectations. Going a bit deeper on the financials this quarter. Total revenue was $193.4 million, up 8.5% with subscription revenue growth of 9% and professional services revenue growth of 2%. I will come back to services in a moment as it is an important part of our outlook. ARR grew to $735 million, up 7%. Calculated billings were $171 million, up 6% in the quarter, with trailing 12-month billings growth of approximately 8% RPO was approximately $1.1 billion, growing 14% and current RPO, the portion we expect to recognize over the next 12 months, grew 10%. Both continue to grow ahead of revenue, driven by larger deal sizes and longer contract lengths. Platform ARR as a percentage of eligible ARR grew to 23%, up from 17% last quarter, keeping us on track for our full year target of 25%. In Mega enterprise, that figure is now 28%. SAP was 26% of revenue. Turning to retention and renewal trends. Dollar-based net revenue retention was 103.5%, driven by platform migrations and cross-sell, offset by lower user adds. Our revenue renewal rate was 90.5% with an enterprise renewal rate over 95%. One settlement with a distressed customer in the quarter reduced the renewal rate by more than 1 point. Churn remains concentrated in lower mid-market accounts. We ended the quarter with 4,316 customers. Now let me turn to profitability and cash flow. Non-GAAP gross margin was 79.7%, up from 79.4% a year ago, with non-GAAP subscription gross margin of 82%. Sequentially, gross margin reflects higher cloud hosting costs associated with infrastructure build-out for strategic markets like public sector, the Middle East and for our sovereign cloud environment. Non-GAAP operating margin was 25.9%, up from 21.4% a year ago and above the top end of our guidance range, reflecting our continued focus on efficiency and productivity, including reallocating resources to our highest priority investments and increasing use of AI across our own operations. Non-GAAP net income attributable to BlackLine was $44.7 million, with adjusted earnings per share of $0.64, up 25% from $0.51 a year ago. We delivered operating cash flow of $67 million and free cash flow of $58 million, bringing year-to-date free cash flow to $130 million. We continue to expect full year free cash flow growth of approximately 20% -- we ended the quarter with approximately $532 million in cash, cash equivalents and marketable securities versus $668 million in debt. In September, we acquired NetNow for about $20 million. We repurchased approximately 1.3 million shares in the quarter for $39 million, bringing year-to-date repurchases to $124 million, nearly 100% of our free cash flow. For the full year, we expect to use approximately 100% of our free cash flow for share repurchases. Before turning to guidance, let me walk through the factors that affected the quarter and our outlook. Deal timing. July and August were solid, but September was soft. Several 7-figure opportunities that had cleared customer approvals did not close as expected. Earlier in the year, deals that slipped typically closed within a few weeks. Today, those time lines are extending further, in some cases, into the following quarter. Additionally, we are seeing customers prioritizing AI-related cybersecurity and infrastructure spending in the near term and a more cautious macro environment is adding scrutiny with more approvals and harder fault terms. AI consumption. Consumption revenue from our Agentic AI products has been below our expectations, and user adds have declined as customers move to platform pricing, as Owen described earlier. SolEx. Some customers paused decisions as they sought greater clarity on how SAP's AI capabilities and our Verity agents work together, making this a challenging quarter for SolEx, particularly for expansion within existing SAP customers. Strategic investments. In the Middle East, the conflict has significantly slowed progress in a region we expect it to ramp in 2026. We are maintaining our investments for now. In the public sector, our pipeline has grown significantly, but award timing has slipped, including awards we expected around the federal fiscal year-end on September 30. Middle market, results have been inconsistent and the commercial changes Owen described earlier are underway. Professional services. Services growth slowed to 2% in the third quarter, and we expect growth of 3% to 4% in the fourth quarter. This reflects deliberate choices. First, we are investing more of our services capacity in customer adoption and enablement, work that is not billable, but is helping drive the improvement in enterprise churn and attrition we have seen this year. Second, our focus on enterprise and mega customers is leading to larger, more complex implementations, where leading systems integrators often serve as the prime contractor and BlackLine participates as a subcontractor. Partner-led projects made up nearly 30% of our services activity this quarter, up from 23% a year ago. That earns us less service revenue, but it reflects the strength of our partner ecosystem and the deals that matter most to us. Our revised full year revenue guide reflects these deal delays and lower services growth. Nearly half of the reduction at the midpoint relates to professional services, where, as I noted, slower growth reflects investments in adoption and our shift toward larger partner-led enterprise implementations. Services also carry lower margins than subscription, so this shift has a limited impact on our profitability. On subscription, we have built our outlook on what we experienced in September and applied it to the balance of the year. Specifically, we assume that deals will continue to take longer to close, that decisions will land later in the quarter, which limits their contribution to revenue this year and that a higher share of opportunities will slip than our historical track record would suggest. That reflects both the current environment and our mix as more of our pipeline is made up of both larger, more complex enterprise and mega opportunities, which typically take longer to close. Our outlook assumes customers remain cautious through year-end, and it does not assume any recovery in close rates in the fourth quarter. We will provide our 2027 outlook on our February earnings call. The long-term drivers of our business, platform conversion, Agentic adoption and new markets and products have not changed. However, we are being prudent in how we reflect their timing in our outlook until we see them in our results. Now regarding guidance for the fourth quarter. We expect total GAAP revenue to be in the range of $195 million to $197 million, representing 6.5% to 7.6% growth. We expect non-GAAP operating margin to be in the range of 25.8% to 26.9%. And we expect non-GAAP net income attributable to BlackLine to be in a range of $47 million to $48 million or $0.67 to $0.68 on a per share basis on approximately 72.4 million diluted weighted average shares. And for the full year 2026, we now expect total GAAP revenue to be in the range of $759.5 million to $761.5 million, representing 8.4% to 8.7% growth. We also expect non-GAAP operating margin to be in the range of 24.2% to 24.5%. And we expect non-GAAP net income attributable to BlackLine to be $174 million to $175 million or $2.48 to $2.49 on a per share basis on approximately 72.9 million diluted weighted average shares. Operator, we're ready for questions.

[Operator Instructions] Your first question comes from Patrick Schulz from Baird.

Maybe just starting off and Patrick, I appreciate all the color you provided around some of the moving pieces with the guidance. When it comes to deal timing, I think last quarter, you guys called out some deal slippage, too, and July, August saw a little soft. Maybe can you talk about, I guess, the confidence level that these are just deal delays rather than lost demand in the pipeline?

Yes. Let me try to cover on that. It's good to hear your voice. So I'm going to walk you through just a couple of quick ones because -- so let me start. We have been working on the largest deal in our company's history and anything else that we've ever done, high 7 figures ACV for quite an extended period of time with a top 10 global revenue company. It's been a 2.5-year pursuit. We've actually, in the process, had to deliver 10 proofs of concept. We've had to show multiple customer referrals -- we've probably gone through the most extensive cyber review we've ever gone through sort of monthly steering committee meetings going through an AI product road map and AI governance review, reliability review, scalability testing and partner reference checks. They sent a dozen people to our industry roundtable just a short period of time ago. And now we're expecting final approval from their executive committee/board this year with a planned start date in January of next year. So a great deal, but just to put in perspective, and we're very confident in that one. How much of a delay it is? We expected when we started this conversation with the customer to be going live this December. So it just gives you the idea of how much more review that's going through those. Second one, and Patrick hit on it just a little bit. So we've been involved with a multiyear pursuit with a federal agency that you have to have the highest level of security required. Contract was expected to be done at 9/30, consistent with the government year-end. We met every hurdle that this agency requested of us, including how we could handle the complex volume of their information, particularly from a matching perspective. We are -- there are 3 finalists that have been selected to do the implementation. We are the technology provider for all 3 finalists. So they've included us in each of the bids. So we're now expecting that what was going to be awarded at September 30 is now going to come December 31 with a kickoff in 2027. I'll just give you one quick one from this week. So after another almost 2-year bake-off, we got a call Monday morning, Fortune 250 company, about a $900,000 ACV telling us that we were the winner. And we asked if we could get the deal done by December 31, and they said, well, we'll try, but January 31 is more realistic. And so again, we can see it. We're highly confident, particularly in the enterprise space that we're going to win these deals, but the delays are what have really not helped us so far. And I can go on with more of those examples. And that is what's caused the real challenge from a linearity perspective in our financial results.

Yes. I appreciate the color there. And maybe a quick follow-up too. Just -- I mean, solid progress on the platform pricing adoption. Can you just talk about maybe the like-for-like uplift you are seeing as customers move to that platform model and maybe where you think some more common pressure points...

Yes, Patrick, thanks for the question. We're really happy with how we're progressing with our platform conversions right now. We feel very confident in the 25% by the end of this year. There's probably a little upside there. We felt confident in that all year long. The conversion rate and the uplift remains in that range of about 10% to 40%. I know that's a wide range, but you can work towards the midpoint. And that depends upon the type of customer that is converting, the attributes of that customer, how long they've been a customer. There are several, several different variables that go into that. But the main point is that we're being successful with those conversions, and that sets the foundation for Agentic monetization in the future. So that is a critical step and critical element, and we are right at, if not ahead of pace with what we thought we'd achieve in that area.

Your next question comes from Chris Quintero from Morgan Stanley.

Makes a lot of sense that it's taken a while for your customers to adopt AI and get the right governance in given these are finance folks that are more risk averse, right? So I think it makes a ton of sense. But I think investors are frustrated by the guidance reduction here. So as you look out to the new guidance you've given, what can you say that can give investors confidence in the new numbers that you've put out there?

Yes. Chris, let me start with what we're seeing in here, right? So first 2 weeks of October, I went out and visited 12 of our largest customers on a global basis. So 6 in Europe, 6 in North America to talk with them about where they were because they're all sort of either have moved to platform or evaluating platform and really trying to understand what's holding them back from moving quicker from an AI perspective. And the reality is it's all the headlines. It's all the things that they see and read every day of what's going wrong with AI versus what the art of the possible is. And so what that's doing for us is it's putting our customers in a spot where they really want to do much more testing around what we have to offer to prove it to themselves in their own sandbox. And I'll get Jeremy to add a little bit more here in just a second. But they're just really being very cautious because they can't be wrong. They're excited about what we've done private previews on for Jeremy and I probably went out to 50 customers at the enterprise level, walking them through BlackLine 3.0. They love the trust infrastructure that they're going to be able to start using in a few weeks. But then it still then comes down to getting them comfortable with agentic AI. We're having no real challenges with them using our generative AI. And so the issue then for us is how quickly can the consumption start just given the way we're seeing the ramp unfold at this particular point in time. And I think the general feeling that when you're talking to these customers, these larger customers, they're going to go at a steadier, slower pace than fast. And we see it in our own experiences so far. If you're private and smaller, you're not worried about if you might get a wrong answer from AI. The first threshold that takes over is if you're public, you're really concerned about it. And then the bigger you are, the more caution that we're seeing. And Jeremy, you want to share what we've got from a Verity Prepare maybe so far?

Yes. In terms of our -- and maybe just to reinforce Owen's point, across AI adoption, we are seeing increased usage from users using AI. This is across all of our AI capabilities. So 25% more users are using AI quarter-over-quarter. Now the question is really around the agentic AI capabilities like we have with Verity Prepare. There, you see more caution as people need cycle time to evaluate how this is performing in production. We now have 1/4 of our entitled customers evaluating this currently. And so you see adoption and usage continue to grow, but they need to bake time and they need to gain that confidence. a lot of our announcements that we have at our upcoming Beyond the Black conference will reinforce and emphasize our control layer and why that fundamentally is different and helps enable the adoption of AI further.

And just, Chris, to put it in context, I was with a Fortune 25 company, and we took them through the agentic financial operations platform, and they're a big user of BlackLine. So they were one of our better adopted customers. And the Chief Accounting Officer in that meeting said, can I have that today? Like we need that because we can't move forward without as well adopted as they are. They were hesitant on moving forward with our AI until they could really have a trust infrastructure. So it just brings it home to life. I think for us, the hard part is figuring out how to how to lay that out for how quickly it all begins to evolve. I think we'll probably feel a little bit like a J-curve as we go through getting customers used to it. We hear it from our customers. Can you show us others that are doing it as well? They want to talk to each other. And I think we'll start to see real progress with that in '27, but how fast is just a little bit harder to predict.

Your next question comes from Matt VanVliet from Cantor.

I guess maybe be curious on what you think the opportunity is at SolEx now that you've been approved for the platform pricing? Is there still a slow cadence of adoption there? Do you think it might speed up a little bit with the more reference customers you have? And then should we expect a similar uplift there? Or is there anything that might be an impediment to achieving at least the higher end of the uplift range that you gave us?

Yes. Patrick and I will tag team on this one. Good to hear your voice. Look, I think I said in my remarks, I mean, SAP is a phenomenal partner in so many ways, and I'm really proud that we have the relationship we do with them. I think what we saw in the last few months that has made things a little bit more complicated is that we haven't come out with a joint road map for Joule and Verity like we did on the golden architecture. And so that has created a little bit of hesitancy from the buyer community and the buyer community that we serve jointly has been pretty vocal about the need for us to continue to accelerate, providing greater clarity to the market as we move forward, and we will do that. It's fantastic that we got the platform pricing approved. But what our customers want with that platform pricing is the Verity capabilities to go along with the platform itself. So what I said, I think in my prepared remarks is we expect shortly after year-end, which in my mind is sort of the first couple of weeks of February to get that PQ to then be able to move forward with our products. I am very confident that it is going to give a nice tailwind to our business in 2027 because we know the conversations that we and SAP have been having with our joint customers over the last few months that will help. Now I'll turn it over to Patrick to give a little bit more about how we might think about the math, but it should be a very good ability to help us move forward in 2027.

Yes. And Matt, the viewpoints, early socialization with or SAP about this, there's no reason that we can't achieve the same level of success through SolEx that we are directly with our customers. Value is value. The end customer, they see value and they're willing to pay for it. So we feel very good that the uplift that I spoke to in the previous question will also be realized with our SolEx customer base.

All right. Helpful. And then, Patrick, on the NetNow deal here, what's the expected contribution in the fourth quarter? Is that all pure subscription to account for? And is there any seasonality in that business? Or should we think about it as pretty pure SaaS revenue?

Yes. I guess the short answer is it was a $20 million acquisition. It was a tech purchase to round out our invoice to cash offering in the marketplace. And that was largely the basis and foundation for that purchase, no different than WiseLayer about a year ago. The contribution of revenue in the quarter and for the year is de minimis. It's fairly insignificant. This is something that we bought. It was more efficient to do that than to build it, and it rounds out our entire IDC offering.

Your next question comes from Steve Enders from Citi.

I guess just to start, I mean, I think there were a lot of factors that have been called out as kind of headwinds here. And I guess I want to get a little bit better sense for maybe where areas you maybe have confidence that it might start to improve sooner rather than later? Or it sounds like some of them, you feel like there might be a bit of a time line when that starts to get kind of cleared up like the SAP relationship. But yes, I would just kind of be able to get like a good sense for maybe kind of what the time line looks like here for when some of these things might improve in the future.

Yes. I think just trying to go through that. So I think starting with the SAP example, sort of middle of the first quarter '27. I think when we have the ability to sell our AI with the platform with our SAP colleagues, that should be positive. Generally, that they had their big quarters in the second and fourth quarter, so it's probably aligned to that. I do think the stuff that we're seeing in the federal government space, probably the end of the year for at least one big one and then another big one in the first quarter of 2027, the way things seem to be shaping up. I'm very bullish about our ability to continue to win in the enterprise space and the mega enterprise space. I really think we've done a great job of putting distance between ourselves and everyone else and the capabilities that we'll be unveiling in a couple of weeks. I think for those of you who have the chance to come down and see it, I think you're going to be very impressed with what we're doing. I think the mid-market, we've learned some good lessons this year. Competing, particularly as there's a number of new native start-ups that are out there and what we can do to differentiate ourselves both from a depth and a breadth perspective, but also security and other things that do matter. And I think explaining that and telling that to the market should work out well. And I think the one thing that's a little bit just harder to predict, which we touched on is just how quickly consumption revenue kicks in as our customers begin to adopt our AI. So right now, I think Patrick and I are really thinking that becomes more the middle of next year, end of next year versus the first half of the year. That's what we're seeing in our thinking right now. Patrick, do you want to add to that? I want to see if Patrick wants to add anything.

No, I think that's well articulated in terms of as we think through the future, we have a very good line of sight on the large deals that Owen articulated earlier in this call. We know exactly how those deals are going, where the buyer is in the process. So we have a very strong line of sight on some of those very large deals that really can change a quarter. I would agree that probably the one thing that we're working through is when will Agentic monetization become notable for the company. And to speak with that absolute candor, the reason we're still working through that is our customers are still working through that. They're still testing the technology. They're getting comfortable with it. They're getting approval from their auditors. They're getting approval from their legal teams. And so as we work through that, that's probably the last leg of major monetization of all the things that we talked about on this call. And that's what we're still thinking through and working through with our entire customer base that's on platform right now.

Okay. That's helpful, and I appreciate the thoughts here. Maybe following up on, I guess, some of the AI points that you're making in terms of the delays. I think you did call out there was some -- I don't know if it's just budget prioritization dynamics playing going on with people assessing what they're doing from an AI perspective or dealing with their security kind of capabilities. Just how much is that about kind of the budget just being pushed elsewhere as people are dealing with token spend and dealing with budget overages versus I guess, kind of the bigger AI pause that's kind of going on as people just try to figure out what they're doing from a financial perspective and working through those dynamics.

Yes. So -- and Jeremy and I'll tag team on this one just a little bit. So when both Jeremy and I are out and Patrick's out and some of our other executives out, we've been asking pretty candidly like where are your budgetary priorities. And clearly, number one, and obviously, we see it elsewhere just in financial results is in cyber defense. Like companies are just really very anxious. And so that's where they're spending more money upfront hardware is sort of the second thing that we see. And then as we go through and talk about our own capabilities, we get way more questions today than ever about our cyber capabilities, how we govern and deploy AI, and there's some announcements we'll make in a couple of weeks about some of those things. So when we're able to demonstrate that strength of we're not going to create any more risk for our customers, it does help. But again, sort of just from a priority perspective, it just sort of becomes part of the topic. But Jeremy, you're out there, too. We've seen other customers when I'm out with you.

Yes. I would say that governance is one of the critical questions that comes up with customers. And we are a trusted brand with these customers. But even for us, as they move to platform pricing to be able to adopt our capabilities, they want new teams, GRC, AI compliance to go through and reaudit our capabilities. So there is a reexamination, which is why we've begun to see an uptick in our entity capabilities following the release, but it takes time to go through those GRC teams, the audit and the other regulatory pieces that they are wanting to scrutinize. We will share more about how we're going to simplify that process at our Beyond the Black conference, but there's a lot being done there to simplify how we get through the regulatory process that our customers want to govern because AI is so critical and they are understanding of the risks, especially in these large enterprises, but they do see the value in deploying it. On the comment made about token spend, I think one of the advantages we have very specifically is that we provide clear certainty around what our AI solutions can deliver for the spend that they have. That's some of the advantage of platform pricing. We are not being charged tokens when you use BlackLine AI capabilities. We bundle that together, as mentioned before, it's easier to understand constructs for a CFO or related buyer, and that is an advantage they see from our perspective.

Your next question comes from Alex Sklar from Raymond James.

This is John on for Alex. You mentioned working with SAP on how your respective AI capabilities can operate together. I'm just curious how those conversations are evolving and maybe what you've learned about where your capabilities can sort of complement theirs as we move forward.

Yes. So Jeremy and I will cover this together. I think the simplest way is there's sort of top-to-top conversations sort of instructing teams to go figure this out. That's my role in that. And then Jeremy, you and our product teams and SAP's product teams are in the trenches figuring out. So you want to pick it up from there?

Yes. In terms of how we are developing with SAP, as a SolEx partner, we are an extension of their solution. So we have a golden architecture that really lays out the fundamentals of how we interoperate as a complete product suite. SAP doesn't distinguish us from a core part of their solution when it comes to the entirety of the record to report solutions. And that's no different for AI. What is coming, though, is working out the mechanics of how we integrate our AI systems together from a metering and billing standpoint, from a technology standpoint, again, from a governance standpoint as well, all those components are being built out currently as we march towards releasing those next year together.

It's a lot of work, and I'm really proud of the way both the SAP and BlackLine professionals work through that.

Okay. Helpful color there. And then I realize we have the guide for this year. But just given the more challenging growth environment here and the elongated sales cycle, how are you thinking about balancing operating margin and continued investment in the platform strategy from here as we move forward?

Look, and Patrick and I will tag team on this one as well. We do a lot of tag teaming around here. Look, I think what we're trying to make sure is that we invest appropriately, allocate our resources to the things that are going to drive the business forward and that we continue to get smarter and more efficient and effective as an organization. And so we're sitting here basically with less than 1% growth in our headcount year-to-date and with the revenue growth the way that we've been able to demonstrate so far. And a lot of that has been driven by our ability to use technology better, use the AI and the technology and then also continue to deploy resources differently around the world. I mean I'm stunned and amazed by what Jeremy has been able to do from a productivity perspective, for example, in the product and engineering team. So we're continuing to really focus on improving margin, but not at the expense of starving the business. That's not what we're looking to do, but that doesn't mean we can't continue to get in better and better fighting shape each and every quarter as we move forward. Patrick, anything to add?

Yes. No, Owen, I think you said it best. I feel -- we feel very confident in our ability to continue to deliver expanding margins into the foreseeable future. We feel very confident in our ability to grow cash flows into the future. And we do that by knowing where our investments are working and to, I guess, allocate capital in a way that drives growth in a prudent and efficient fashion. And everything that we're talking about today and that we talked about during this call, we know is working. It's just a timing matter. We know where customers are seeing interest. We know what deals are close to closing. We know where there's excitement in the marketplace. We know that this is working. It's just a matter of time, and we'll continue to evaluate that investment strategy as we see it in our results.

Your next question comes from Daniel Jester from BMO Capital Markets.

This is Kyle Aberasturi on for Dan Jester. Could you just double-click on NRR in the quarter? I guess how much of that was impacted by large deal delays? And I guess, what do you think the team needs to do to focus on driving NRR higher in the near term?

Yes. Well, NRR, its impact in the quarter was more a story around account growth of our existing base and driving even more consumption into that base, which we have not seen. But the large deals that Owen has talked about that we're still working through are net new logos. So they would not have an impact on NRR in the quarter. We did have a very positive quarter from a churn and attrition standpoint, and we continue to improve there. But largely, what it would take to get back to the 109, 110 that is in our model, we feel very confident that we're going to get there is continued expansion into the base, not just through the platform, but through consumption revenue while still controlling and reducing churn and attrition into the future. That is our path that we're working through right now.

Okay. Great. That makes a ton of sense. And then just a quick follow-up. I guess, -- as you guys think about the remainder of the year, I guess, do you still think you can achieve double-digit ARR growth exiting the year?

We'll evaluate that as we get to the end of the year, and that would obviously have an influence on 2027 guide. But there are some headwinds in that regard, and we'll continue to work through that.

Your next question comes from Billy Fitzsimmons from Piper Sandler.

I appreciate the follow-up cover already given on the deals slipping in September and taking longer to close. Two quick follow-ups. Of the deals that have slipped, were these concentrated in particular end customer verticals or geographies? And then the second part is when you constructed the 4Q guide, what assumptions were made on close rates versus prior guidance this year?

Yes. So Patrick, again, I'll break this up a little bit. So no real concentration by geography. I will say European customers are increasingly focused in our conversations with us around data sovereignty -- the decoupling of that part of the world to be dependent on any other part of the world in some ways is having an impact on some of the conversations. And you might have seen one of the announcements we just made in a partnership with Thales for Continental Europe. So that is certainly something we've been working our way through. But beyond that, I wouldn't say there was really anything too dramatic around geographic shift. But Patrick, do you want to go through the rest of it?

Yes. In terms of why we feel so confident in our 4Q guide and some of the assumptions that we put behind it, in no particular order, one, it was called out in the prepared remarks, we're assuming about a 3% to 4% increase in professional services revenue year-over-year. That's obviously lower than normal, but that was built into the guide to account for the good things that's driving that, which is the investments we're making into our customer base to drive down churn and attrition and increase adoption. And it's also reflective of the fact that we are landing larger 7-figure deals in the enterprise and mega enterprise space that require partner involvement or partner-led implementations, which is less service revenue to us. So that is one key element to how we build out the fourth quarter guide, a little bit different than the previous quarters. In terms of deal duration or time to close deals, -- if you remember, we had slipped deals in the first quarter. Many of those deals closed in the second quarter. And then in the second quarter, we also had slipped deals, but we increased the rate of closure. It moved in a positive direction. In the third quarter, it looked a little bit more like the first one, and that's the assumption that we use. So we put into place a slightly longer time to close, more reflective of the first and third quarter activity or actual results, and that was built into the guide and why we feel very confident and why it's a prudent guide.

And then just as a quick follow-up, some of those deals that slipped in 2Q, can you just describe, I think it was $8 million. Did those end up closing in the third quarter?

Yes. I mean -- so going back to what we talked about, that was a large reason for a very strong July that we had here and a strong August. But unfortunately, September did not pan out that way.

Your next question comes from Tomer Zilberman from Bank of America.

Maybe I wanted to shift to the recent acquisition that you guys disclosed of NetNow. First, at a high level, I wanted to ask you what it gives you. I think it's some AI capabilities. And then further, like as you think about M&A going forward or build versus buy, what are other areas of your portfolio that you think you can further AIF, if I can call it that?

Yes. Jeremy, why don't I start and then if you don't mind picking up. I think, look, -- what NetNow does for us was it helps us complete our invoice to cash cycle. And when customers were sort of just looking like for cash application, we were doing pretty well. But when they were looking for a more holistic solution, our win rate wasn't as high. There's a couple of things we had on our road map that we have been building, and we'll be sharing those in 10 days or so. But there was a piece around what NetNow brought to bear that we would like to have built, but that was probably more for '27. We saw what we thought was a great asset with a really strong team and decided that it was smart for us to bring them in. And so far, it's only a few weeks at this particular point in time. but the difference they're helping us make in the marketplace around our positioning has been very nice in the fourth quarter so far. But why don't you talk a little bit more about not only that and then also sort of how we're thinking about acquisitions.

Yes. NetNow does a great job of really helping complete our invoice-to-cash suite. So when you think about that life cycle, when you decide to enter into a trade relationship with a customer, you need to do things like check bank references, trade references, do fraud screening, check physical addresses and things like that. This takes that whole process and automates it end-to-end. And so it's really complementary to what you're going to continue to see from us from a credit and risk standpoint across our invoice-to-cash product suite. So it's a fantastic tuck-in acquisition from that.

And I think just for other things we're looking at, it's really sort of upstream sort of on our core wheelhouse, right? So what else can we be doing within the financial close and consolidation space or in the invoice to cash where it can accelerate the time to value might fill in some of the continuing niche things that our customers are asking us for and just be smart about how we spend capital. I think one of the things I feel good about with the team that I have around me is they don't get deal fever and we walk away from way more deals than you can possibly imagine because they're just not going to deliver the kind of value that we would like.

Got it. Maybe as a follow-up then on platform pricing. Good to see that you reached 23% this quarter, a quarter ahead of your year-end 25% goal, and that's excluding SolEx. And if I understood you earlier, you actually said you received approval to add platform pricing to the SolEx channel. How does that change how you're thinking about the 25% year-end goal? And if I recall, you had an 80% to 90% target over the next few years. Does that help expedite that?

I guess just for a point of clarification, when we speak to the 23% of eligible ARR, that excludes SolEx. So that would be something that we would add into the numerator and denominator of that calculation. Overall, though, this is a net tailwind for us. We still feel very confident that as we work through this cycle with SolEx and non-SolEx that we will achieve 80% on the platform over the next several years. We feel very confident for the eligible ARR exclusive of SolEx because it's not officially there yet or approved yet, that we'll get to 25-plus percent by the end of this year and at least 40% plus by the end of next year. And then SolEx is a tailwind on top of that. So that's how you should be thinking through that just from a modeling perspective.

Your next question comes from the line of Jacob Zerbib from William Blair.

Just a quick question for me. Last quarter, you discussed platform pricing and Agentic AI contributing at least 2 points of incremental growth in 2027. I guess given your commentary today about customers taking a few quarters to kind of evaluate BlackLine 3.0 before expanding adoption, has your expectation for that contribution changed? Is that still achievable? Any color on that would be helpful.

Yes. I mean it's something that we continue to evaluate. As we look at more and more proof points for the remainder of this year and early next year before we come out with the guide, we feel very confident in the incremental ARR/ACV that we generate through platinum uplifts that we'll get throughout next year, coupled with the SolEx contribution that will now be in play. From an agentic contribution standpoint, we're getting more and more proof points every day. Working with Jeremy's team and the customers that we currently have on platform, we're evaluating that and modeling that out. But right now, we still are evaluating can we get to that 2%, but the platform uplift alone will get us very close to that number.

This concludes today's question-and-answer session. I'll now hand the call back to Owen Ryan for closing remarks.

Thank you, everybody, for listening and participating in the call tonight and look forward to catching up with many of you in the call backs. Have a good night, everybody. Take care. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.