BlackLine, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unaudited results; dollar amounts below are in millions unless stated otherwise. BlackLine provides cloud-based financial accounting and close-management software. It reported 3,138 customers and 277,426 users at quarter-end.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $83.3 | $69.7 | $165.9 | $133.8 |
| GAAP gross margin | 79.9% | 78.5% | 80.2% | 78.7% |
| Operating loss | $(3.3) | $(6.0) | $(10.7) | $(15.3) |
| Net loss attributable to BlackLine | $(8.3) | $(5.4) | $(21.2) | $(14.1) |
| Basic and diluted loss per share | $(0.15) | $(0.10) | $(0.38) | $(0.26) |
Revenue increased 20% in the quarter and 24% for the first half. Subscription and support revenue rose 18% and 22%, respectively; professional services revenue rose 50% and 70%. Growth was attributed to customer and user additions, product expansion within existing accounts, and strategic product sales. GAAP gross margin improved year over year, while operating expenses increased 15% in Q2, led by sales and marketing and general and administrative costs.
Non-GAAP net income attributable to BlackLine was $11.9 million in Q2 and $17.9 million for the first half, compared with $6.0 million and $6.9 million in the comparable 2019 periods. These company-defined measures exclude, among other items, stock-based compensation and debt-discount amortization.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $471.6 million and marketable securities were $154.9 million, totaling $626.5 million. Total current assets were $739.9 million; current liabilities were $203.0 million.
- Operating cash flow was $18.1 million for the first half, versus $11.6 million a year earlier. The company attributed the increase partly to noncash expenses and working-capital movements, including higher deferred revenue and improved collections.
- Investing cash flow was $324.3 million, primarily reflecting net maturities and sales of marketable securities—not operating cash generation. Financing cash flow was $8.9 million.
- The company had $500.0 million principal amount of 0.125% convertible senior notes due 2024; carrying value net of discount and issuance costs was $395.5 million. The notes were not convertible at quarter-end. Cash, cash equivalents and marketable securities exceeded the notes’ principal, but the filing states the company may have to pay cash or issue shares upon conversion or other specified events.
- Management said existing cash, investments and operating cash flow should cover working capital, capital expenditures and financing obligations for at least the next 12 months.
Changes, outlook and risks
- Dollar-based net revenue retention was 108%, down from 110% in Q4 2019 and Q1 2020; management linked the decline in existing-customer expansion to COVID-19-related constraints on technology spending. Customer count grew 12% and users grew 17% year over year.
- COVID-19 had deferred purchasing decisions and implementation projects, reduced services revenue, and affected pipeline and large deals, including in EMEA, North American mid-market, and the SAP channel. Management expected these pressures to affect fiscal 2020, but provided no specific financial guidance in the supplied filing text.
- Work-from-home and virtual customer events were in place; travel restrictions were expected to continue through Q3 2020. The company offered free training and six months of complimentary Task Management and Reporting modules to existing customers. It also increased network-security investment amid heightened remote-work cybersecurity risk.
- Contracted revenue not yet recognized was $395.1 million; approximately 60% was expected to be recognized over the next 12 months. This is not equivalent to a revenue forecast.
- The company continued to report GAAP losses and an accumulated deficit of $181.9 million. Major risks include prolonged economic weakness and delayed sales, customer retention and expansion, longer and less predictable sales cycles, competition, cybersecurity and service interruptions, foreign-exchange exposure, and dependence on cloud and channel partners.
- Contingent consideration related to the 2013 acquisition had a fair value of $6.3 million, with a maximum possible cash payment of $8.0 million subject to realization of specified tax benefits. Purchase obligations totaled $13.2 million. The company reported no litigation expected to have a material adverse effect and no accrued liability for indemnification arrangements.
- The filing revised 2019 interim financial statements for a previously identified income-tax error deemed immaterial to the previously issued statements; the revisions increased reported tax expense and net loss. Management reported disclosure controls effective at June 30, 2020, with no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether COVID-19-related deal delays, customer spending limits and lower retention persist, and how they affect new bookings, renewals and revenue growth.
- Cash-flow quality: distinguish operating cash flow from the large investing inflow generated by marketable-security maturities and sales.
- Convertible-note terms and potential cash needs or dilution under conversion, repurchase, or maturity scenarios; also review the capped-call protections and counterparty risks.
- How stock-based compensation and other exclusions affect the gap between GAAP losses and non-GAAP income.
- Whether contracted revenue converts on schedule, and whether the $395.1 million performance-obligation balance and its expected recognition timing remain current.