BlackLine, Inc. — Q2 2022 Form 10-Q
Business context and reporting period
BlackLine provides cloud-based accounting and finance automation software, primarily through SaaS subscriptions. This unaudited report covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Unless noted otherwise, amounts below are in U.S. dollars.
BlackLine reported 4,003 customers and 347,932 users at quarter-end. It acquired FourQ Systems on January 26, 2022, to extend intercompany accounting automation. FourQ’s revenue and earnings contribution since acquisition was described as immaterial to consolidated results.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $128.5m | $102.1m | $248.7m | $201.0m |
| Gross margin (GAAP) | 74.4% | 76.9% | 74.4% | 77.4% |
| Operating loss | $(12.7)m | $(9.7)m | $(38.1)m | $(28.4)m |
| Net loss attributable to BlackLine | $(10.7)m | $(25.4)m | $(20.7)m | $(64.4)m |
| Operating cash flow | Not separately presented | Not separately presented | $6.1m | $40.9m |
| Non-GAAP net income attributable to BlackLine | $5.0m | $9.6m | $5.7m | $16.7m |
Q2 subscription and support revenue was $120.7m, up 27%; professional services revenue was $7.8m, up 12%. GAAP diluted loss per share was $0.18, compared with $0.44 in Q2 2021. Non-GAAP gross margin was 78.7%, versus 79.8%.
At June 30, cash and cash equivalents were $208.5m and marketable securities were $821.1m, totaling approximately $1.03bn. Current liabilities were $328.3m. Convertible senior notes had a net carrying value of $1.382bn; aggregate principal outstanding was $1.4bn. Management said available cash, investments, and operating cash flow should cover working capital, capital expenditures, and financing needs for at least the next 12 months.
Material changes versus prior comparable periods
- Revenue rose 26% in Q2 and 24% in the first half, driven by customer and user growth, sales of additional products and strategic offerings, and FourQ revenue. The dollar-based net revenue retention rate was 110%, up from 106% a year earlier and unchanged from Q1 2022.
- Gross margin declined year over year. Management cited higher cloud-hosting costs, including migration to Google Cloud Platform and FourQ-related costs, higher headcount, and acquired-technology amortization.
- Operating expenses rose 23% in Q2, with sales and marketing up 34% and research and development up 48%. General and administrative expense fell 29%, primarily reflecting a favorable change in the fair value of contingent consideration.
- Q2 net loss attributable to BlackLine narrowed, while operating loss widened. Lower interest expense compared with 2021 materially affected the net-loss comparison; the earlier period included convertible-note discount amortization and a $7.0m extinguishment loss.
- First-half operating cash flow fell to $6.1m from $40.9m. Investing cash outflow was $337.3m, including $157.7m net cash paid for FourQ and net purchases of marketable securities.
- Adoption of ASU 2020-06 on January 1, 2022 reclassified convertible-note accounting and resulted in a $262.1m cumulative-effect reduction to equity. The company also recorded a $13.3m first-half income tax benefit, primarily from a partial $14.2m release of its valuation allowance following FourQ-related deferred tax liabilities.
Outlook, risks, and unusual items
The filing provides no specific revenue, earnings, or margin guidance. Management noted that longer, less predictable sales cycles for larger contracts and strategic products may increase quarterly variability. Contracted revenue not yet recognized was $682.8m at June 30; approximately 56% was expected to be recognized in the following 12 months.
Key risks highlighted include customer renewal and expansion, competition, macroeconomic and COVID-19 effects on customer spending and sales cycles, cybersecurity and service availability, dependence on third-party cloud providers, international and foreign-exchange exposure, hiring and retention, and successful integration of acquisitions. BlackLine also disclosed exposure to contingent consideration, including up to $73.2m related to FourQ, and $46.9m of purchase obligations, of which $6.4m was due within 12 months. The company reported no litigation expected to have a material adverse effect and said its disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether revenue growth, 110% retention, and customer/user expansion continue, and how much growth comes from existing customers versus new sales or acquisitions.
- Whether gross-margin pressure from hosting, migration, headcount, and acquired-technology amortization persists.
- How operating cash generation develops, given the first-half decline, and whether the company’s liquidity assessment remains appropriate.
- The potential cash and earnings effects of the $1.4bn convertible-note principal, conversion or repurchase provisions, and acquisition-related contingent consideration.
- How much reported profitability depends on non-GAAP adjustments, stock-based compensation, contingent-consideration remeasurement, and tax benefits.