BlackLine's (BL) CEO Therese Tucker on Q4 2016 Results - Earnings Call Transcript

| About: BlackLine (BL)

BlackLine (NASDAQ:BL)

Q4 2016 Earnings Conference Call

February 23, 2017 05:00 PM ET

Executives

Christine Grinney - The Blueshirt Group, Managing Director

Therese Tucker - Founder and CEO

Mark Partin - CFO

Analysts

Terry Tillman - Raymond James

Mark Murphy - JP Morgan

Matt Lemenager - Robert W. Baird

Bhavan Suri - William Blair

Jesse Hulsing - Goldman Sachs

Liz Verity - Pacific Crest Securities

Operator

Good day ladies and gentlemen. Welcome to the BlackLine Fourth Quarter 2016 Financial Results Conference Call. At this time all participant lines are in a listen-only mode to reduce background noise but later will be holding question-and-answer session after the prepared remarks and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded.

I would now like to introduce your first speaker for today Christine Grinney, you have the floor.

Christine Grinney

Good afternoon and thank you for your participation today. With me on the call is Therese Tucker, Founder and Chief Executive Officer of BlackLine and Mark Partin, Chief Financial Officer. Before we get started I would 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, 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 conference call.

While we believe any forward-looking statements we have made are reasonable, actual results could differ materially because the statements are based on our current expectations and are subject to risks and uncertainties. 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.

Also unless otherwise stated all financial measures discussed on this call will be non-GAAP. A discussion of why we use non-GAAP financial measures and a reconciliation schedule showing GAAP versus non-GAAP results is currently available in our press release, which may be found on our Investor Relations website at investors.blackline.com or on our Form 8-K filed with the SEC today.

Now I'd like to turn the call over to Therese to begin.

Therese Tucker

Good afternoon everyone and thank you for joining us today. I am very pleased with BlackLine’s Q4 and the overall very busy year of 2016. We executed well and gained momentum in some key areas. Our total non-GAAP revenue reached 124 million for fiscal 2016 reflecting a year-over-year growth rate of 48%. For me one of the primary benefits of being public is my ability to create more BlackLine evangelist. So if you are on this call and invest in, analyze or work with other companies I'd like for you to ask their CFOs how they close their books and how they produce their financial reporting results. Is it manual and labor intensive? Have they ever heard of BlackLine? Are they interested in efficient, accurate, cost effective controlled results? They can learn more about us at blackline.com and questions can either be directed to myself or the general mailbox at info@blackline.com. Now on to the highlights, our customer base grew to more than 1,700 customers around the world. That's up 31% from 2015. For the year, we added 420 new customers in both enterprise and midmarket across multiple industries and geographies. Notable wins include Allianz France, Aramark, First Data Corporation, GoPro, Houghton Mifflin Harcourt, Marathon Petroleum, Reynolds Consumer Products, The Humane Society, Thermo Fisher Scientific and Roku.

Now I enjoy competition and this might be my favorite highlight. In Q4 alone, we had five new large enterprise customers that are switching from a competing product. Because of the complexity both technical and political around making a vendor change especially for a larger company these types of wins not only confirm BlackLine’s leadership position but also speak to the breadth and depth of value that our solutions deliver. We are also seeing larger deal sizes which Mark will talk about shortly. At the end of 2016, there were nearly 167,000 finance and accounting professionals who rely on BlackLine to make their daily life easier. This represents year-over-year user growth of 30%. Equally important are strong net dollar revenue retention rate of 116% demonstrates the stickiness of our solution as customers see the value of adding more users and buying additional products. In 2016, we continued to build BlackLine’s global reach. During the past two years, we expanded our presence in Europe with new offices in France, Germany and the Netherlands. Looking ahead, we plan to focus primarily on other markets in Europe and Asia. In Q3 of last year, we acquired Dutch company Runbook. I am so pleased to report that integration is going very well. They have great products, happy customers and a very talented set of employees. Further the great enthusiasm by their founders has helped make our integration smooth and fast.

It's good to be a public company and I believe the exposure will help our business for many years to come. It was a lot of work and I'm very happy to be back to running the business full time. BlackLine historically has received a great deal of recognition in the marketplace and 2016 was no exception. We were named to the Gartner Magic Quadrant for the first time and included in the Forbes inaugural Cloud 100 ranking, both tremendous honors. There are several others and I won't list them all, but two that mean the most to me personally are the best place to work rankings from the Los Angeles Business Journal and Fortune magazine. Any success that we achieve is because of the people that work here. They live and breathe our model of think, create, serve. By being so dedicated and working so hard they make phone calls like this one easy for me. I am particularly pleased with the strength that we are seeing across different sectors. I will quickly relate three different customer case studies to demonstrate how BlackLine customers use our services to transform their finance and accounting organizations.

We recently signed one of the largest technology companies in the world who was previously using a competing product for reconciliations. They came to BlackLine looking not only to replace their current process but also to find a solution with enough flexibility to support their other entities. By selecting BlackLine they will be able to provide a unified solution across the business. They told us the biggest drivers behind the move to BlackLine were our deep portfolio of products and superlative customer service. One of our newer customers is a financial institution in the mid-market. When we met them, the company told us they were spending several hours per day trying to verify and validate transactions by manually matching them in spreadsheets. More time was being spent by their branches on inefficient close prophecies. They were considering another competing product when we first met them but they chose to go with BlackLine. By purchasing our financial close management package they expect to cut man hours in these two areas by 75%. One of our large enterprise customers with 16,000 employees worldwide has been using BlackLine’s financial close management solutions since 2014. They recently purchased the Intercompany Hub to replace a homegrown system. With more than 100 different legal entities, they did not have a single central source for intercompany activity. As a result many workflow, journals and documentation made for a lack of visibility, manual settlements, risk around foreign exchange and insufficient reporting. The Intercompany Hub which we refer to as ICH provides a single centralized view of all intercompany activity.

Secure interaction between entities by type of transaction is configured during the implementation to provide appropriate and necessary workflow access. Because transactions are systematically tied to all details including automated journals and invoices, visibility into all work streams is inherent. Manual posting errors are eliminated and manual labor around the intercompany reconciliation process is minimized. The single centralized approach allows necessary reports for tax and audit to be easily generated. Turning now to 2017, we view this as our year to execute on our plans and continue to grow. We want to fine tune our software production, streamline our implementations and improve the overall customer experience. Every enhancement that we make to the software is designed to assist our customers in their continuous accounting journey. The more BlackLine products that our customers use, the more they see the value in breaking up large period end batch processes, automation around road activities and the ability to deal with exceptions in real time. The continuous accounting approach allows companies to produce higher quality results more quickly with less manual labor.

We are very focused on satisfying our customers. Right now our leadership team is working on initiatives that will streamline the customer's journey so that customers go live more quickly and implement and utilize all of the products that they buy. We believe those initiatives will help BlackLine retain its top leadership position and assist with converting more companies to customers. Our goal is to create wildly happy customers and that's only realized by listening to their needs and delivering software that provides significant value. Globally, our total addressable market is very large. We believe that there are 165,000 companies who could be BlackLine customers. To reach those companies we plan to continue strengthening our sales teams across both enterprise and mid-market this year. They'll be focused on selling our core platform, pursuing larger deals and building momentum around new strategic products like the Intercompany Hub and the Smart Close. Key to this success is making sure that there is lockstep alignment between sales and marketing, our ecosystem partners and our services and products group.

Specifically we’ll have more tailored initiatives by geography, industry verticals and market segment. In 2017, partners will also play a key role in providing expertise and transformational services that pair well with BlackLine software. One of the benefits of being a public company is that the independence concerns have been mitigated. And we're able to pursue closer formal partnerships with three of the big four accounting firms. From a product perspective, in the first part of the year, we are focusing on platform improvements that make our customers happy. One important area of focus is the BlackLine run book integration. We believe that close integration between the BlackLine platform and the Smart Close product will give our clients new capabilities that make the latest buzz phrase of robotic process automation or RPA an actual reality for them. We are also focusing on innovative enhanced reporting and dashboarding, making the variance analysis a seamless part of every client's close, building out additional connectors to other ERPs and improving the capabilities and flexibility of our learning engine. While these may not mean much to you, all of these focus areas are designed to delight our customers.

Given our focus on the Intercompany Hub and the large opportunity that we see there, we will continue to apply substantial development resources to this product to make sure that our solution addresses complex intercompany processing in a way that no other solution can rival. There are a number of regulatory changes that are bringing greater interest to this area. For example, we are currently examining what additional reporting is necessary to address changes to the IRS code around intercompany loans and the BEPS initiative. Demand for BlackLine solution remains strong. We believe that success lies with staying focused on our customers and efficient execution of our growth strategies. We look forward to keeping you updated on our progress.

Now I'll ask Mark to discuss the financials and then we'll open the call to questions.

Mark Partin

Thanks Therese and good afternoon everyone. I'll quickly mention that during my remarks today unless I specify otherwise all numbers are non-GAAP. We are proud to report a strong fourth quarter and another great year. For the full-year 2016, total revenue grew 48% to $124 million. Gross margins were strong at 81% and we delivered substantial improvement in our operating loss margin moving from a negative 21% in 2015 to a negative 10% in 2016. In fact, 2016 was yet another year with positive operating cash flow after taking into account a $6.4 million accrued picked interest payment related to the early retirement of our debt. In the fourth quarter, total revenue increased 47% year over year to $36 million as overall global demand for our core platform was strong and we had good performance in all areas of the business. We landed 133 net new customers if Q4. That brings our total customer count to 1,758 representing growth of 31% year over year. We added both large and midsized customers during the quarter resulting in a revenue mix of approximately 80% enterprise and 20% mid-market. Also, our international revenue is up a point from 2015 finishing 2015 at 17% of the total. Our new logo deals continued to get larger generally after landing with an initial deal, the customer footprint expands over time.

However, in Q4, we continued our recent trend of signing customers with larger deal sizes. We believe we are getting more share of wallet upfront on new customers for a few reasons. First, some of these deals are takeaways from competitors where we are replacing a large deal they previously had. Second, some customers are buying more products in their initial deal and the innovative pricing on products like Intercompany Hub and Transaction Matching are driving higher average revenue per user. And third, our leadership position, brand and product awareness along with our partner ecosystem have made the landing of larger deals more common. Just as importantly, our existing customers continued to expand which helped us achieve a net revenue retention rate of 116% in the fourth quarter. This is thanks to more user expansion, product upsell and continued price increases, along with a strong renewal rate. The 116% retention rate is consistent with our expectations for the quarter and this rate can vary quarter to quarter based on buying and renewal patterns of our largest customers.

In 2016, we set operational non-financial goal for upsell in our new strategic products to existing customers. We are using that experience to launch our 2017 go to market plan for these products which now include Smart Close as well. In 2017, as Therese mentioned, we anticipate selling more Intercompany Hubs and Smart Close deals along with our selling more of our existing products. Because of a longer sales cycle and delivery times on these deals, it is not expected to be material to our overall revenue for the year. However, we believe there is potential for meaningful contribution to the topline in 2018 as those customers get rolled out. Also as Therese talked about we are excited about the progress we are making with the integration of Run Book. As expected the Run Book business contributed a nominal amount to revenue and expense in Q4. However, we were able to sell a handful of deals that were in flight at the time of the acquisition. These deals generated approximately $4 million of license sales related to Run Book standalone customers and products. They are viewed as onetime sales and were built in Q4 of 2016 with the revenue being amortized over future periods. Notably, we were able to close our first two combined BlackLine Plus Run Book Smart Close deals. This is sooner than planned and while not financially material it is operationally significant for us and it provides momentum for this product going into 2017.

Turning now to gross margin. Our revenue mix of 95% subscription and 5% services continued to drive strong gross margins of 81% in Q4. We expect this make to remain fairly consistent in 2017. However, as we continue to build out services and support for our new product, we expect to see gross margin throughout ‘17 trend more in line with our target model of 80%. In 2016, we began to see rapidly improving operating leverage across all areas of the business; sales and marketing, R&D and G&A. Total OpEx in the fourth quarter was 31.8 million or 89% of revenue versus 25.1 million or 103% of revenue in the fourth quarter of 2015. Improved operating leverage resulted in a much lower operating loss for the fourth quarter of 2.6 million, a substantial improvement from an operating loss of 5.3 million one year ago. Fourth quarter non-GAAP net loss was 3.9 million or $0.08 per share which compares to non-GAAP net loss of 6.1 million or $0.15 per share in the fourth quarter of 2015. The weighted average common shares used to calculate fourth quarter EPS was 47.7 million shares in 2016 and 40.7 million shares in the 2015 period. We ended 2016 with $105 million of cash, cash equivalents and marketable securities.

During Q4 we used the IPO proceeds to repay our $68 million term loan in full which included $6.4 million of accrued PIK interest. The accounting rules require us report that as an operating cash outlay despite the onetime nature of the payment. Excluding the PIK interest, cash flow from operations would have been slightly positive for both Q4 and for the full-year 2016. For those of you who know us well operating cash flow is an important metric for us as we have had positive operating cash flow on an annual basis for several years. We believe it really speaks to the power of our business model. It is important to point out that in 2017 we expect to continue investing across the business to drive top line growth to pursue those strategic goals that Therese talked about in her earlier remarks. This includes expanding our sales and marketing footprint, further investing in our partner ecosystem, enhancing our strategic product capabilities and scaling our global infrastructure. We have just come out of our annual planning process and expect to see it accelerated investments in the first half of this year related to those initiatives.

It is our goal to drive annual year over year improvement in our operating margin and cash flows. However on a quarterly basis, we will see variability as it is not a straight line to our target operating model. That said, we continue to feel confident in our path and remain on track to turn operating income and operating cash flow positive in Q4 of 2017. Now I'll turn to our guidance for the first quarter and full-year 2017. For Q1, total GAAP revenue is expected to be in the range of 36.8 to 37.8 million. This reflects a year over year growth rate of 39% to 42% compared to GAAP revenue of 26.6 million in the first quarter of 2016. We anticipate that non-GAAP net loss will be in the range of 4 to 5 million. Utilizing fully diluted weighted average shares of 51.3 million, we expect non-GAAP net loss per share of $0.08 to $0.10. For full-year 2017, we expect total GAAP revenues to be in the range of 166.5 to 169.5 million. This reflects a growth rate of 35% to 38% over GAAP revenue of 123.1 million in 2016. Non-GAAP net loss in 2017 is expected to be between 16.3 and 18.3 million. Utilizing a fully diluted weighted average share count of 52.9 million, we expect non-GAAP net loss per share to be in the range of $0.31 to $0.35. We are pleased with the ongoing strength we’re seeing across the business. In 2017, our teams will be focused on doing more of the same. Adding new customers expanding within our customer base and continuing to innovate.

Now Therese and I would be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll be taking our first question from the line of Terry Tillman from Raymond James. Your line is open. Mr. Tillman I’m not getting any audio from your line. Mr. Tillman, please check your mute button. Last call for Terry Tillman.

Terry Tillman

Yes, can you hear me?

Operator

Loud and clear sir.

Terry Tillman

I guess Mark just quick financial question. So for Run Book, the $4 million in license, you said that you would have booked or build that I don't know if both or one of the other, I may have that confused but how do we think about that $4 million was that multi-year - multiple years of license and then how does that spread out or what kind of impact we see on that in 2017?

Mark Partin

Yeah, great question. Hi, Terry. And if you're going to do seven questions this time, let us know. So Runbook was built in a perpetual license. So the $4 million is a one-time upfront bill. However, due to the accounting rules and the nature of the contracts from Runbook, we are going to amortize that revenue over future periods. It will be, in some cases, long periods, multiple years. And in other cases, it will be over short periods of time. So it does create a bit of a lumpy revenue rack for that $4 million, but it's not material to the overall business. So it won't be that significant. But it's important to say that in Q4, it does show up in the billing. It will be amortized over a long period of time and it’s one-time. And then starting January, in case this is your next question, we are converting sales of Smart Close that Runbook product into subscription contracts that are more consistent with Blackline rev-rec contracts.

Terry Tillman

Okay. And I definitely am going to be under 7 questions, but just kind of closing the loop at least from my perspective on Runbook, I mean just any education for us on $4 million worth of business in terms of, are we talking dozens of customers, a few customers? I know they had signed some big deals in the past, just would love to get some perspective on what we're talking about there?

Mark Partin

Yeah, great question. If you recall, we acquired between 80 and 90 customers and those customers had follow-on purchases to expand their footprint with Runbook and that was in the pipeline, those deals were in flight. So what we did was close about $5 million of those deals, 1 million came in Q3 if you recall and then 4 million in Q4. So we closed out sales to existing customers. So we didn't expand the customer base, just expanded the customers.

Therese Tucker

And I'm just going to jump in Terry, we did do however two deals in Q4 that were combined Blackline Smart Close deals, two new customers. That’s not in the 4 million.

Terry Tillman

Okay. Well, Therese, so in terms of just kind of the cadence of business in the fourth quarter. It sounded like you're seeing good trends, larger transactions, intercompany hubs being sold and some deals that's good, even some Smart Close business, but did you see any kind of change in linearity because of the election or then post the election or how was the tone of business throughout the three months? Thanks a lot.

Therese Tucker

Thank you for that question, Terry. We have seen no evidence that politics affects our business at all.

Operator

Are you ready for the next question? Our next question comes from the line of Mark Murphy from JP Morgan. Your line is open.

Mark Murphy

Yes, thank you. And I’ll also echo my congratulations. So, Therese, would you say that in Q4 alone, you had five new enterprise customers that are switching from a competing product. I guess, I'm just curious is that five customers all switching off the same single competing products or are they each kind of moving off of different various products?

Therese Tucker

Okay. Mark, as long as we don’t name names, yes. Same product.

Mark Murphy

Okay. And so can I just ask you, is there something, is that highly unusual, it sounds unusual, it sounds like you have one key competitor that’s certainly having considerable problems. But I mean have you had other quarters where you've taken a comparable number of customers away from that competitor?

Therese Tucker

Well, I don't want to speak to how other people are handling their business, whether that's good or bad. So I’m not going to agree with your problem statement. I will say that there were a couple of things that were notable about this quarter. The recognizability of the names that switched the size of the deals and yeah, it might have been on the high end in terms of the actual number. We generally do see some switches from other products, but it's not usually the bulk of our business. It’s not the bulk of our business here, but these were some very large, very recognizable names.

Mark Murphy

Okay. And then as well, Mark, I wanted to ask you when we think about the spread between your user growth, which I believe came in at 30% and then revenue growth, call it, 47%, can you help us a little bit to bridge the gap between those two numbers just in terms of what you think is chiefly driving that, is it favorable adoption of more product modules, is it other types of price uplift or something else that’s coming into the picture there?

Mark Partin

Yeah. Thank you. You answered it for me. It's those things. It is, in particular though, I'll add Runbook did add a few points to revenue in the fourth quarter, but we have multiple levers of growth. And users is one. Customers is another. But also our ability to sell product in to customer and expand the customer and we have consistently and historically seen deal sizes in both enterprise and mid-market expand over time and we saw that same level of growth in Q4 and through the full year. So when you think about growth lever, users is one of those. We also have product, we have products today that we sell that aren't user base.

Therese Tucker

Yes. And I was just going to add to what Mark was saying about the transaction matching and the intercompany hub are not per user priced and so it might slightly look a little odd if user growth doesn't keep up with revenue for that reason.

Mark Murphy

Okay. Got it. One last question, Therese, I'm just curious when you look at the systems that your customers are connecting to in terms of their general ledgers and other systems, do you see those tipping over to the cloud providers like NetSuite and Workday Financials. Just I’m wondering how are those looking in terms of your new bookings mix.

Therese Tucker

Honestly Mark, I think our customers have spent - I think that it is moving towards the cloud. I think that that movement is still relatively slow, given the cost and time that it takes to replace an ERP.

Operator

Thank you. Our next question comes from the line of Matt Lemenager from Robert W. Baird. Your line is open.

Matt Lemenager

Great. Thank you. Hi, Therese. Hi, Mark. I had a question on the mid-market and it's kind of a newer focus. Can you talk about how the reconciliation volume of customers that you're seeing in the mid-market compares to enterprise and then on that, can you talk about the size of the organizations in the mid-market, how low are we going down that pyramid?

Therese Tucker

Well, Matt, we typically, Matt, yes, it is Matt, we typically focus on companies in the mid-market that are 50 million or greater in revenue. Now that being said, we do have sometimes incoming inquiries from companies that are smaller than that, but it's not a segment that we actively pursue. So we view the mid-market as 50 million to 500 million. We're seeing very strong demand there. Reconciliation volume, now, do you mean, when we talk about that, what's actually very interesting there is we see a lot more usage of the transaction matching in the mid-market than even maybe an enterprise. Okay. And the reason for that is, it really translates directly to body counts. If somebody is doing a lot of work in Excel spreadsheets matching, they really can't scale up their operations without either hiring more people or adding software. So we do see quite a bit of usage on individual transaction reconciliation. On account reconciliation, obviously, enterprise companies have larger numbers of balance sheet accounts typically because they do their reconciliation by entity. Was that so much -

Matt Lemenager

No. That's helpful. And then just one second one I had was on the margins, they saw nice leverage again this quarter. It looks like the second quarter in a row that sales productivity was nicely up. Can you give just any more color around sales productivity and then the R&D expense grew 3% to 4% for the second quarter you talked about investing in the product and intercompany hub. So would that be more of a stepped up effort as we go into 2017?

Mark Partin

Thanks, Matt. Sales and marketing, we accelerated investment in the global scale of our sales teams and partnerships in ‘15 and ‘16 and what you're seeing in ‘16 and then again in ‘17 is more around which equals more productivity coming from the sales force. So that's the first thing. The second thing is we're getting the benefits of scale in some of the areas that we go into internationally. With R&D, yes, we also accelerated R&D investment in ‘15 and in ‘16 and ‘17, we’ll begin to get the benefits of scale, continuing to invest, but year-over-year, we'll see operating leverage in that part of the business as well.

Therese Tucker

And just a follow-up on Mark's comment, we will continue to invest in our intercompany hub. I don't know that it's really a stepped up function, but we're very, very committed to that and we're committed to learning everything about this market and making sure that our customers are successful using our ICH product.

Operator

Thank you. Our next question comes from the line of Bhavan Suri from William Blair. Your line is open.

Bhavan Suri

Hey, guys. Nice job. Can you hear me okay?

Therese Tucker

We can. Hi, Bhavan. I noticed you were first on the call.

Bhavan Suri

Anyway, now you’ve broken my chain of thought. Let's jump in for a quick second. So intercompany hub obviously just seems like an interesting opportunity. When you look at the partners, especially now the formalized relationships with the three big accounting firms, I felt like a lot of that was for the core reconciliation product and everything else, are the partners getting intercompany hub, do they get how to sell that, do you need to educate them further. Or are they already involved with their clients in discussions around potentially implementing intercompany hub?

Therese Tucker

I love that question. They are already involved with their clients, discussing intercompany needs and why Blackline can help address those.

Bhavan Suri

Great. And so when you look at the strategic nature of that, there's lots of accounts coming due reconciliation, as the conversation with intercompany is happening and you have to work through the ROI, would you give us some color know for the deals you had, what is the type of ROI guys are getting, from being able to do hedging better or whatever it is from a value prop perspective?

Therese Tucker

I can't give you that right now. Okay. And there's a couple of reasons for that. First off, we’re adjusting the price of the intercompany hub almost in real time, because we've seen such terrific demand, all right. Secondly, one of the reasons, one of the big reasons that our customers are really needing this, the ICH, is because of risk issues around taxes, around different taxing border authorities, around accounting requirements that are changing and so it becomes very much a risk and compliance issue. And for example, if you have transactions between two countries and both countries claim that they get the tax to full amount, you've got incredible exposure. Okay. And you need to very clearly show transactions going back and forth. So it's a little bit difficult to measure the ROI of what doesn't happen when you have the intercompany hub. But the things that are happening are scaring the daylights out of some of our customers.

Bhavan Suri

Got it. So that’s helpful. And then one quick one for Mark, just on the customer count, you guys are an enterprise company and then, as you sort of head down markets, it feels like ARPU could tick down, but customer count obviously would increase from a growth perspective, because there is just lots more smaller customers buying at smaller amount. Is that a thing you're seeing because you also talk about larger deals in the mid-market, I'm just trying to see the puts and takes that sort of gets you as we look forward to what that might look like?

Mark Partin

Yeah. Look, I think that's fair. These are levers of growth. So we get velocity on customers in the mid-market and we get big footprints and large deal sizes in the enterprise. So we don't give guidance on customer numbers and user numbers, but what we saw in the last half of the year was upsize deals in enterprise and in mid-market and that's driven by product and the larger deal size for us was great, right, because it's just one of the levers of growth that we saw. In 2017, it's our expectation in the guidance that we gave that it will be very consistent with what we're doing now. It would be business as usual in terms of the levers of growth.

Therese Tucker

And to Mark's point, it's great to have multiple levers because they tend to balance each other out.

Bhavan Suri

Yeah. And then one last one from me, just on the net dollar expansion rate, obviously very healthy still, but if you're signing larger deals, right, so the ability for those guys to expand next year versus smaller deals where the expansion possibility is larger, just so that we're all on the same page, is there a chance that net dollar expansion rate trends down as you’re actually capturing a lot of share of wallet in that initial first deal?

Mark Partin

Yeah. Bhavan, I think that's a great question. Here's what we'll say about the net dollar retention rate is that our tools today for driving greater penetration into the accounts have never been greater from our sales teams to our new products to our ability to expand platform footprint within the account already and we're continuing to get price increases. And I should add our dollar revenue renewal rate maintains very high, very consistent. So the tools are there for us. And we're firm believers not just that this is a massive unpenetrated market, but that our existing customers remain unpenetrated. So there's opportunity there.

Operator

Thank you. Our next question comes from the line of Jesse Hulsing from Goldman Sachs. Your line is open.

Jesse Hulsing

Thanks for taking my question. I have a couple of questions. Mark, the first one is for you. When you think about, I guess, sales and marketing resource deployment for ‘17, where are you adding more incremental capacity? Is it in the enterprise, is it in the mid-market, is it in your account management team, what's your plan for the year there?

Mark Partin

Yeah. Thanks, Jess. It’s all of those. You look at the growth initiatives and the strategic plan for this year, we still see and are continuing to see great demand in all of those areas and we've built good infrastructure in scale both for mid-market and enterprise and for international and for the domestic. So we’re going to put incremental sales capacity to work in all of those areas and I would add one more, we've said that we're enhancing and continuing to improve our ecosystem. I think that's one in this year that we're also investing further in our partners and their ability to help us with these new strategic products. So it's sales capacity in all the areas where we see demand.

Jesse Hulsing

Got you. And then this one maybe is for Therese, on Runbook, I think one element of the geologic, that acquisition was that it could be a catalyst for your European business. I'm wondering if you're starting to see any signs of that or is it too early to make a call there.

Therese Tucker

Well, actually, we've seen strong demand for Runbook Smart Close products, both in Europe and here domestically, which is best case that you could hope for, right. So their customers absolutely love what Runbook does and we're seeing terrific demand basically everywhere. So I’m happy about that really.

Jesse Hulsing

Yeah. Are you seeing that help your mainline Blackline business now that you have a stronger European footprint?

Therese Tucker

Have we seen that, Mark?

Mark Partin

It might be too early to tell.

Therese Tucker

Yeah. It might be too early to tell. I do think that the Runbook people that we acquired are absolutely terrific and so very highly talented. So I can't see how they won't help us, right.

Operator

[Operator Instructions] We will be taking our next question from the line of Brent Bracelin from Pacific Crest Securities. Your line is open.

Liz Verity

Hi. This is actually Liz on for Brent. So one of my first questions is, it seems like you have a pretty strong focus on the Smart Close. I was hoping you could kind of run down kind of the changes you’ve made to the product, since you've kind of acquired Runbook and like how much more you think you have to go and kind of this idea of robotic process automation and what exactly that means to for us in kind of layman terms?

Therese Tucker

Yes. Well, what's really interesting about that is that robotic process automation is basically meant much of what we already do. And somebody decided that if you can give the computer instructions to do a whole series of things by itself, then you can call that robotic process automation and get a really terrific ROI, all right, which is precisely what the Smart Close product does, it actually allows you to set up all of these different jobs and work streams where the results of one job or batch feed in to the next and based on the results will cause different logic and it allows for a completely automated close inside of the ERP from a systems perspective, right. It is almost the epitome of robotic process automation. And so Smart Close, when we acquired that product, they already do that and their customers already have this live, all right, which is why it's been very appealing.

So this is sort of a case where marketing is actually catching up to functionality that already exists. Okay, and put a nice sexy label on it. And so at this point, the Smart Close product is a very complete, very mature product. What we have done over the last few months is we've been working on Phase 1 of the integration of the Smart Close product and the exchange of information with the Blackline platform. Okay. And so I actually explained this in our Q3 earnings call that this is Phase 1 of multiple phases where we bring the results of all of these different work streams in to Blackline. And Phase 2 will be where we actually send information back and Phase 3 will most likely be where we look at taking that same type of framework and applying that same approach to essentially controlling the work streams in an ERP to other ERPs besides SAP. Again, I probably just gave you way too much detail.

Liz Verity

No. It’s actually perfect. That helped a lot. And then my other question was, you talked about landing larger initial deals and from the competitive, picking up from competitors, that made sense, but I kind of wanted to dig into the reason why an initial customer would decide to add on more product than I assume a new customer would have a year ago, is that kind of a function of your strategy, your brand recognition, like what's kind of driving that?

Therese Tucker

I would say both of those things. You just hit the words right out of my mouth. One, it is certainly a strategy of ours. Right. I mean it works for us. But secondly, in early days, when customers didn't know who Blackline was, it was more of try it and if it works, add more. We're really seeing that go away, right. We’ve established that we are clearly the leader. We are clearly capable of addressing their needs. Many times, the buyer will be a previous buyer from another company and so companies are more willing to commit to us on the front end. That's one. Number two is we're seeing that the intercompany hub commands a significantly larger price tag as well and more and more of our deals are including that as one of the products.

Operator

[Operator Instructions] I'm showing no other questioners in the queue at this time. So, I’d like to turn the call back over to management for closing comments.

Therese Tucker

So this is Therese and Mark and thank you everybody for joining us today and we appreciate your attention.

Mark Partin

Thank you.

Operator

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may now disconnect at this time. Everyone, have a great day.

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