BlackLine, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results. BlackLine provides SaaS financial-accounting close and automation software.
Business context and operating metrics
At quarter-end, BlackLine reported 4,368 customers and 381,892 users, up 8% year over year for each. Subscription and support generated approximately 94% of nine-month revenue. Dollar-based net revenue retention declined to 105% from 109% a year earlier and 106% in each of the prior two quarters.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $150.7m | $134.3m | $434.3m | $383.0m |
| Gross margin (GAAP) | 75.6% | 75.8% | 74.9% | 74.9% |
| Operating income (loss) | $(1.1)m | $(21.4)m | $1.5m | $(59.5)m |
| Net income (loss) attributable to BlackLine | $11.9m | $(20.0)m | $30.8m | $(40.7)m |
| Diluted EPS | $0.19 | $(0.34) | $0.49 | $(0.68) |
| Operating cash flow | Not provided by quarter | $84.4m | $30.3m |
Revenue increased 12% in Q3 and 13% for the first nine months, principally from customer and user growth. Subscription revenue grew 13% in both comparisons. Q3 operating expenses fell year over year, but included $8.7m of restructuring costs. Net income also reflected higher interest income ($14.0m in Q3) and a $11.1m reduction in FourQ contingent consideration. For nine months, that contingent-consideration fair-value change reduced expense by $33.5m.
Non-GAAP net income was $37.9m for Q3 and $93.7m for nine months, versus $15.1m and $20.8m, respectively, in 2022. These measures exclude multiple items, including stock-based compensation, acquired-intangible amortization, contingent-consideration changes and restructuring costs; they are not substitutes for GAAP results.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $236.2m and marketable securities were $925.7m at September 30, 2023, totaling approximately $1.16bn.
- Aggregate convertible-note principal was $1.40bn: $250m of 0.125% notes due 2024 and $1.15bn of 0% notes due 2026. The 2024 notes are presented as current; management expects $250m of principal to become due within 12 months. Neither series was convertible at quarter-end.
- Current assets were $1.32bn versus current liabilities of $605.9m. Management said cash, investments and operating cash flow should meet working-capital and financing needs for at least 12 months and that it expects to make payments due in that period.
- Nine-month investing cash outflow was $58.3m, including $16.8m of capitalized software development and $11.4m for the Data Interconnect acquisition. Cash and cash equivalents plus restricted cash increased $35.3m during the period.
- Contracted but unrecognized revenue was $767.6m; approximately 58% was expected to be recognized over the next 12 months.
Material changes, outlook and risks
- On September 12, BlackLine acquired Data Interconnect for $11.4m cash to add electronic invoice-presentment and payment capabilities to its accounts-receivable automation offering. The purchase-price allocation was preliminary; the acquired business’s reported contribution was not material.
- The August 2023 restructuring targets a workforce reduction of approximately 9% (166 positions). BlackLine recorded $8.7m of Q3 termination costs and estimated total program costs of up to $9.0m. Management expects approximately $28m of annual gross cost savings by year-end 2024.
- The filing provides no specific revenue or earnings guidance. Management noted that economic uncertainty has led some customers to delay or defer purchasing decisions. Larger contracts and strategic products can lengthen sales cycles and make results less predictable.
- Key risks include customer renewal and expansion, retention-rate deterioration, macroeconomic and financial-sector uncertainty, competition, cybersecurity and service availability, dependence on cloud providers and channel partners, and integration of acquisitions. Foreign-currency movements and higher interest rates may also affect results; BlackLine does not currently hedge foreign-currency exposures.
- BlackLine reported no litigation expected to have a material adverse effect. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material change in internal control over financial reporting identified for the quarter.
Important facts for investors to verify
- Whether retention and customer expansion stabilize, given the 105% net revenue retention rate, and whether customer and user growth converts into sustained revenue growth.
- Whether the announced restructuring achieves the expected savings by year-end 2024, and what further costs or execution effects arise.
- How BlackLine will fund or settle the $250m 2024 note maturity, and the cash-versus-share implications of any future note conversions.
- How much reported profitability depends on interest income and contingent-consideration remeasurement, versus recurring operating performance.
- Whether Data Interconnect integrates as intended and contributes meaningfully to accounts-receivable automation growth.