BlackLine, Inc. — Q1 2020 Form 10-Q
Reporting period: Quarter ended March 31, 2020. BlackLine provides cloud-based financial accounting and close-process software as a service. Financial figures below are in U.S. dollars; amounts are rounded to millions unless stated otherwise.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $82.6 million | $64.1 million | +29% |
| Subscription and support revenue | $77.0 million | $61.3 million | +26% |
| Professional services revenue | $5.6 million | $2.9 million | +95% |
| GAAP gross profit / margin | $66.5 million / 80.6% | $50.5 million / 78.8% | Margin +1.8 percentage points |
| Operating loss | $(7.3) million | $(9.3) million | Loss narrowed |
| Net loss attributable to BlackLine | $(12.8) million | $(8.8) million | Loss widened |
| Basic and diluted loss per share | $(0.23) | $(0.16) | Loss per share increased |
| Operating cash flow | $8.5 million | $3.0 million | Increased |
Revenue growth reflected customer and user additions, expansion of products among existing customers, and strategic product sales. Customers rose 13% to 3,056 and users rose 20% to 271,957 year over year. Dollar-based net revenue retention was 110%, up from 108%.
GAAP gross margin improved, while non-GAAP gross margin was 82.4%, versus 82.8%. Non-GAAP net income attributable to BlackLine was $6.0 million, compared with $1.0 million. These non-GAAP measures exclude specified items and should be considered alongside GAAP results.
Liquidity, balance sheet, and debt
- Cash and cash equivalents were $311.0 million and marketable securities were $303.0 million at March 31, 2020, totaling approximately $614.0 million.
- Current assets were $720.6 million and current liabilities were $199.6 million. The company reported total assets of $1.01 billion.
- The company had $500.0 million principal amount of 0.125% convertible senior notes due 2024; their net carrying amount was $389.9 million. The notes were not convertible at quarter-end.
- Investing cash flow was $181.3 million, primarily reflecting net proceeds from maturities and sales of marketable securities. Financing cash flow was $0.9 million.
- Management stated that cash, investments, and operating cash flows were expected to cover working capital, capital expenditures, and financing obligations for at least the next 12 months.
Material changes, outlook, and risks
- COVID-19: Management reported deferred purchasing decisions, delayed implementation projects and lower services revenue, and potential delays in North American and EMEA mid-market, large digital transformation, and SAP-related deals. Customers could seek extended payment terms, concessions, or reduced spending. The pandemic had no material reported financial-statement impact in Q1, but future effects were uncertain. The filing gives no numerical full-year guidance.
- Profitability and expenses: Operating loss narrowed, but net loss attributable to BlackLine widened. The 2020 period included $5.5 million of noncash amortization of debt discount and issuance costs, as well as a $2.2 million adjustment related to redeemable non-controlling interest. Stock-based compensation was $9.5 million.
- Revenue visibility: Contracted revenue not yet recognized was $369.7 million; approximately 61% was expected to be recognized over the next 12 months. This is not a guarantee of future revenue.
- Financial-statement revision: The company revised Q1 2019 comparative statements for a prior-period tax error. The revision increased the 2019 tax provision and net loss by $198,000; management had determined the errors were not material to previously issued statements.
- Contingencies: No pending litigation was identified as likely to have a material adverse effect. Indemnification exposure was described as indeterminable, with no liability accrued because payment was not considered probable or reasonably estimable. Contingent consideration related to the 2013 acquisition had a fair value of $6.5 million, against a maximum payment of $8.0 million.
- Other items: The company reported effective disclosure controls. It also disclosed officer and employee equity awards approved after quarter-end.
Important facts for investors to verify
- Whether pandemic-related sales delays, implementation deferrals, service revenue declines, and customer payment requests materially affect subsequent results and collections.
- Whether the 110% retention rate and customer growth translate into sustained subscription growth, and how contracted revenue converts into recognized revenue.
- The ongoing cash and earnings effects of the $500 million notes, including future conversion, repurchase, and maturity obligations.
- The drivers of GAAP losses versus positive non-GAAP net income, including debt-cost amortization, stock compensation, and the non-controlling-interest adjustment.
- The nature and implications of the revised 2019 comparative financial statements and the company’s continuing assessment of COVID-19-related credit and asset risks.