BlackLine, Inc. — Q1 2019 Form 10-Q
Reporting period: Quarter ended March 31, 2019. Unaudited results; dollar amounts are in U.S. dollars. BlackLine provides cloud-based financial accounting close software, primarily through SaaS subscriptions.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $64.1 million | $51.3 million; up 25% |
| Subscription and support revenue | $61.3 million | $48.6 million; up 26% |
| GAAP gross profit and margin | $50.5 million; 78.8% | $39.7 million; 77.4% |
| Operating loss | $9.3 million | $7.6 million loss |
| Net loss attributable to BlackLine | $8.6 million; $0.16 per diluted share | $7.2 million; $0.13 per diluted share |
| Non-GAAP net income attributable to BlackLine | $1.1 million | $0.3 million |
| Cash from operating activities | $3.0 million | $1.8 million |
| Cash and cash equivalents plus marketable securities | $134.8 million at March 31, 2019 | $132.6 million at December 31, 2018 |
Operating expenses were $59.8 million, up 27%, including sales and marketing of $35.8 million, research and development of $10.3 million, and general and administrative expense of $13.7 million. Cash and marketable securities exceeded current liabilities of $162.6 million only when considered alongside other current assets, including $72.3 million in receivables and $133.0 million in deferred revenue. The filing reports no interest expense in Q1 2019 and does not clearly state a total borrowings balance. Operating lease liabilities were $17.0 million; contingent consideration was $6.3 million.
Changes versus the prior comparable period
- Revenue growth reflected more customers, more users and products sold to existing customers, and increased sales of strategic products. Customers rose 18% to 2,707 and users rose 12% to 226,979 year over year.
- Dollar-based net revenue retention was 108%, down from 110% a year earlier and from 111% at June 30, 2018. Management cited possible contributors to the longer-term decline including churn, larger initial deals, slower adoption of new products, and slower user expansion.
- GAAP gross margin improved 1.4 percentage points. Operating loss widened as operating expenses grew faster than revenue; R&D expense increased 49%, with higher headcount and lower capitalization of software development costs among the drivers.
- Operating cash flow increased to $3.0 million. Deferred revenue rose $3.9 million during the quarter, while accrued expenses and other current liabilities fell $6.2 million, primarily reflecting payment of 2018 employee bonuses.
Outlook, risks and unusual items
- No specific quarterly or full-year revenue or earnings guidance is provided. Management said existing cash, investments, and operating cash flow should fund working capital, capital expenditures, and financing obligations for at least the next 12 months.
- Management expects a longer and less predictable sales cycle as the company pursues larger contracts and more complex strategic products. Sales are seasonal, with fewer customers typically added in Q1 and sales often concentrated near quarter-end.
- Contracted revenue not yet recognized was $297.4 million at quarter-end; the company expected to recognize approximately 63% over the next 12 months.
- BlackLine adopted ASC 842 lease accounting on January 1, 2019, recording $14.9 million of right-of-use assets and $18.3 million of lease liabilities at adoption. The adoption did not affect equity, operating results, or cash flows.
- Performance-based options for two executives had an estimated grant-date fair value of approximately $24 million after targets were set in Q1. Management determined achievement was not probable and recorded no related compensation expense.
- Key risks include retaining and expanding customers, the declining retention metric, competition, longer sales cycles, execution of international and reseller strategies, cybersecurity and service interruptions, foreign exchange exposure, and continued losses. The company reported no litigation expected to have a material adverse effect and no material indemnification accrual.
Important facts for investors to verify
- Whether customer retention and expansion trends stabilize, and how much revenue growth continues to come from existing customers versus new customer additions.
- Whether operating expense growth and stock-based compensation can be managed while BlackLine invests in sales, R&D, and international expansion.
- The composition and liquidity of the $134.8 million cash-and-securities balance, alongside lease payments, contingent consideration, and other commitments.
- How the SAP reseller relationship affects sales, partner fees, and customer purchasing channels.
- Whether contracted revenue converts to recognized revenue as expected; the filing notes that quarterly results are not necessarily indicative of full-year results.