BlackLine, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. BlackLine provides cloud-based financial accounting and close automation software. Figures below are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $139.0 | $120.2 | +16% |
| Subscription and support revenue | $130.4 | $113.5 | +15% |
| Professional services revenue | $8.6 | $6.7 | +28% |
| GAAP gross profit / margin | $103.7 / 74.6% | $89.6 / 74.5% | Margin +0.1 percentage point |
| Loss from operations | $(15.3) | $(25.4) | Loss narrowed |
| Net loss attributable to BlackLine | $(12.0) | $(10.0) | Loss increased |
| Basic and diluted loss per share | $(0.20) | $(0.17) | Loss per share increased |
| Cash provided by operating activities | $22.9 | $0.2 | Increased |
Non-GAAP gross margin was 78.9%, versus 78.1%; non-GAAP net income attributable to BlackLine was $25.1 million, versus $0.7 million. These are company-defined non-GAAP measures and should be considered alongside GAAP results. The GAAP net loss attributable to BlackLine includes a $5.2 million adjustment related to the redeemable non-controlling interest; consolidated net loss was $6.7 million.
At March 31, 2023, cash and cash equivalents were $222.6 million and marketable securities were $865.3 million, or about $1.088 billion combined. Current assets were $1.243 billion and current liabilities $363.5 million. Convertible notes had $1.4 billion aggregate principal outstanding ($250 million due 2024 and $1.15 billion due 2026); their net carrying amount was $1.386 billion. Management said available liquidity and operating cash flows should meet working capital, capital expenditure and financing needs for at least 12 months.
Investing activities provided $9.0 million, mainly as marketable-security maturities exceeded purchases; financing activities used $10.2 million, primarily for shares withheld for employee tax obligations. Capitalized software development costs were $6.9 million. Contracted but unrecognized revenue was $773.3 million; the company expected to recognize approximately 56% over the next 12 months.
Changes versus the prior comparable period
- Revenue grew 16%, primarily from more customers and users and additional products purchased by existing customers. Customers increased 9% to 4,236 and users increased 9% to 369,493.
- Dollar-based net revenue retention declined to 106% from 110% a year earlier, and from 107% at year-end 2022.
- Operating loss narrowed as revenue and gross profit increased. Higher interest income—$10.7 million versus $0.5 million—also supported results, while GAAP net loss attributable to BlackLine increased.
- Operating cash flow rose to $22.9 million from $0.2 million. The 2022 investing outflow included $157.7 million, net of cash acquired, for the FourQ acquisition; no acquisition payment was reported in Q1 2023.
- Stock-based compensation expense increased to $20.4 million from $15.9 million. The company recorded $1.0 million of restructuring costs in Q1 2023.
Outlook, management commentary and risks
- No quantified full-year revenue, earnings or cash-flow guidance is provided in the filing. Management cautioned that Q1 results are not necessarily indicative of full-year results.
- Management reported that economic uncertainty had led customers to delay or defer purchasing decisions, weighing on near-term demand. Larger contracts and strategic products may involve longer, less predictable sales cycles.
- In December 2022, the company announced a workforce reduction of approximately 5% (about 95 positions), primarily to focus resources on growth priorities; related actions were substantially completed in Q4 2022, with some Q1 2023 charges.
- Key risks include customer renewal and expansion trends, macroeconomic and banking-sector uncertainty, competition, cybersecurity and service availability, reliance on public-cloud providers and strategic partners, foreign exchange, and the ability to execute product and international growth plans.
- The company’s $8.0 million contingent payment related to the 2013 acquisition was due by November 15, 2023. Up to $73.2 million of additional FourQ acquisition consideration could be payable if specified milestones are met; its recorded fair value was $36.7 million at quarter-end.
- The notes require substantial cash repayment or settlement in specified circumstances and at maturity; the company noted that future ability to repay or refinance depends on performance and market conditions. No material adverse litigation was reported, and management concluded disclosure controls were effective at a reasonable assurance level.
Investor facts to verify
- Whether the lower retention rate and reported customer purchasing delays continue, and how they affect renewals, expansion and revenue growth.
- How much of the $773.3 million of contracted unrecognized revenue converts to recognized revenue, particularly the expected 56% over the next 12 months.
- Cash generation and liquidity relative to the $1.4 billion note principal, including the 2024 and 2026 maturity and conversion terms.
- Achievement of FourQ contingent-consideration milestones and the eventual cash cost of acquisition-related obligations.
- Trends in stock-based compensation, restructuring charges, and the reconciliation between GAAP losses and non-GAAP earnings.