BlackLine, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement figures are unaudited. BlackLine provides cloud-based financial accounting close and automation software, primarily through subscriptions.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $144.6m | $128.5m | $283.6m | $248.7m |
| Gross margin, GAAP | 74.3% | 74.4% | 74.5% | 74.4% |
| Operating income (loss) | $17.9m | ($12.7m) | $2.6m | ($38.1m) |
| Net income (loss) attributable to BlackLine | $30.8m | ($10.7m) | $18.8m | ($20.7m) |
| Diluted EPS | $0.45 | ($0.18) | $0.30 | ($0.35) |
| Operating cash flow | Not separately presented for the quarter | $47.4m | $6.1m |
Subscription and support revenue grew 13% in Q2 and 14% for the six-month period year over year. Professional services revenue grew 12% and 19%, respectively. Non-GAAP gross margin was 78.8% in Q2 and 78.8% for the first half; non-GAAP net income was $30.7m and $55.8m, respectively. These are company-defined non-GAAP measures and exclude specified items.
Liquidity, debt and other metrics
- At June 30, cash and cash equivalents were $204.5m and marketable securities were $921.7m, totaling approximately $1.13bn. The company said these resources and operating cash flows should cover working capital, capital expenditures and financing needs for at least 12 months.
- Convertible notes had $1.40bn aggregate principal outstanding: $250m of 2024 Notes and $1.15bn of 2026 Notes. The 2024 Notes had approximately 13 months remaining to maturity; neither series was convertible at quarter-end.
- Current assets were $1.284bn and current liabilities were $355.0m. The balance sheet reported $1.387bn of convertible notes, net of issuance costs.
- Customers increased to 4,279 from 4,003 a year earlier; users rose to 377,585 from 347,932. Dollar-based net revenue retention declined to 106% from 110%.
- Contracted but unrecognized revenue was $778.6m; approximately 57% was expected to be recognized over the next 12 months.
Material changes and unusual items
- GAAP profitability improved versus the prior-year loss periods. Q2 interest income increased to $12.5m from $1.7m, primarily reflecting higher rates on investments and cash balances.
- Q2 general and administrative expense was a credit of $0.1m, compared with expense of $14.3m in Q2 2022. The change primarily reflected a $25.5m reduction in the fair value of FourQ contingent consideration. This noncash valuation change materially affected reported results.
- First-half operating cash flow increased to $47.4m from $6.1m. Investing cash use fell to $47.0m from $337.3m, when the company paid $157.7m net for the FourQ acquisition.
- The company continued a workforce reduction announced in December 2022; it recorded $1.1m of related restructuring costs in the first half of 2023, with most actions completed in 2022.
- A five-year extension of the Woodland Hills office lease increased right-of-use assets and lease liabilities by approximately $7.3m during Q2.
Outlook, commentary and risks
The filing provides no specific numerical revenue or earnings guidance. Management reported that economic uncertainty has led some customers to delay or defer purchasing decisions, affecting near-term demand. Larger contracts and strategic products may lengthen and make sales cycles less predictable. Management also highlighted dependence on renewals and expansion sales, competition, cybersecurity and service availability, reliance on public-cloud providers (including migration to Google Cloud Platform), and macroeconomic and foreign-exchange risks.
BlackLine reported no legal proceeding expected to have a material adverse effect and stated that disclosure controls were effective at a reasonable assurance level. It also cautioned that future accounting assessments, including contingent consideration and asset recoverability, could affect future financial statements.
Important facts for investors to verify
- Whether the reduction in dollar-based net revenue retention from 110% to 106% persists, and how customer expansion and renewals develop.
- How much reported earnings benefit from contingent-consideration remeasurement and other excluded items, versus recurring operations.
- The timing and cash requirements for repayment, conversion or refinancing of the $250m 2024 Notes and the $1.15bn 2026 Notes.
- Whether customer purchasing delays, longer enterprise sales cycles, and cloud-migration costs affect future growth and margins.
- How much of the $778.6m contracted revenue is recognized on schedule and whether the company’s stated liquidity outlook remains adequate.