BlackLine, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. BlackLine provides cloud-based financial accounting and close software, primarily through subscriptions. The statements are unaudited.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $134.3M (+23%) | $109.4M | $383.0M (+23%) | $310.4M |
| Gross profit / GAAP gross margin | $101.8M / 75.8% | $85.0M / 77.7% | $287.0M / 74.9% | $240.5M / 77.5% |
| Operating loss | $21.4M | $6.0M income | $59.5M | $22.4M |
| Net loss attributable to BlackLine | $20.0M | $13.7M | $40.7M | $78.2M |
| Basic and diluted loss per share | $0.34 | $0.23 | $0.68 | $1.34 |
| Non-GAAP net income attributable to BlackLine | $15.1M | $15.1M | $20.8M | $31.8M |
| Non-GAAP gross margin | 80.1% | 80.3% | 79.0% | 80.1% |
Subscription and support revenue was $126.1M in Q3 (+22%) and $360.3M for nine months (+24%). Professional services revenue was $8.2M in Q3 (+26%) and $22.7M for nine months (+10%). The company attributed growth to customer and user additions, greater product adoption and average user pricing, including strategic products, and FourQ revenue.
Cash flow and liquidity: Nine-month operating cash flow was $30.3M, down from $58.0M. Investing cash outflow was $378.5M, including $157.7M net cash paid for FourQ and $196.1M net purchases of marketable securities. Financing cash outflow was $0.2M. Cash and cash equivalents were $190.5M and marketable securities were $855.4M at September 30, totaling about $1.05B. Management said available liquidity and operating cash flow should cover working capital, capital expenditures and financing obligations for at least 12 months.
Debt and balance sheet: Convertible notes had $1.4B aggregate principal outstanding: $250M of 2024 Notes and $1.15B of 2026 Notes. Notes were not convertible at quarter-end; the company said it currently intends to settle conversions using a combination of cash for principal and shares for any excess conversion value. Current assets were $1.18B and current liabilities $314.6M. Total assets were $1.88B; stockholders’ equity was $77.9M.
Changes and notable items
- Revenue grew 23% year over year in both Q3 and the first nine months, while GAAP gross margin declined 1.9 percentage points in Q3 and 2.6 points for nine months. Management cited acquired-technology amortization, higher headcount and cloud hosting costs, including Google Cloud migration, among cost increases.
- Operating expenses rose 56% in Q3 to $123.3M. General and administrative expense increased to $31.0M, including fair-value changes in contingent consideration, higher personnel and professional services costs, and $1.0M of legal settlement costs. Nine-month transaction-related FourQ costs were $14.0M across expense categories.
- Net loss attributable to BlackLine widened in Q3 versus 2021, but narrowed for the nine-month period. Lower convertible-note discount amortization and the absence of the prior-year extinguishment loss reduced interest expense; a $12.9M nine-month income tax benefit also contributed, primarily from a $14.2M partial release of valuation allowance following FourQ deferred tax liabilities.
- FourQ was acquired January 26, 2022, to enhance intercompany accounting automation. Cash consideration was $160.2M, with up to $73.2M of additional earnout payments; acquired revenue and earnings were not material to reported results. Goodwill increased to $443.9M, primarily due to the acquisition.
- Adoption of ASU 2020-06 on January 1, 2022 reclassified the convertible-note equity component, reducing additional paid-in capital and increasing retained earnings through a $262.1M net balance-sheet adjustment; the reported cumulative equity adjustment was $262.1M.
Business indicators, outlook and risks
At September 30, 2022, BlackLine reported 4,060 customers, 354,924 users and a 109% dollar-based net revenue retention rate, compared with 3,704 customers, 315,144 users and 108% retention a year earlier. Contracted revenue not yet recognized was $684.6M; the company expected approximately 56% to be recognized within 12 months. The filing provides no specific forward revenue or earnings guidance.
Management cited uncertain macroeconomic conditions, customer spending and renewal behavior, longer and less predictable sales cycles for larger strategic deals, hiring and cost pressures, competition, cybersecurity and service availability, reliance on cloud providers and partners, foreign exchange exposure, and acquisition integration as risks. The company said it was increasing cybersecurity investment and was migrating some data-center workloads to Google Cloud. COVID-19 and geopolitical developments, including the war in Ukraine, could affect customers, operations and technology spending. No material adverse litigation was identified. Management reported disclosure controls were effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Track whether subscription growth and retention remain strong, and whether the 109% retention rate translates into sustained customer expansion.
- Assess the drivers of margin compression and whether cloud hosting, acquired-technology amortization and staffing costs moderate.
- Review operating cash flow conversion against reported losses, acquisition-related spending and future investment needs.
- Monitor the FourQ earnout, contingent consideration fair-value changes and integration outcomes.
- Evaluate liquidity against $1.4B of note principal, including potential cash requirements at conversion, repurchase or maturity.
- Consider the effects of foreign exchange, macroeconomic demand, cybersecurity, cloud-provider reliance and customer renewals on results.