BlackLine, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2016. BlackLine provides cloud-based financial close and accounting software. The interim financial statements are unaudited.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $32.2 million | $21.7 million | $87.8 million | $59.1 million |
| Gross margin | 76.6% | 72.6% | 75.5% | 72.3% |
| Operating loss | $7.2 million | $9.8 million | $25.2 million | $24.8 million |
| Net loss | $6.6 million | $6.7 million | $23.5 million | $17.5 million |
- Q3 and nine-month revenue grew 49% and 48%, respectively, year over year. Subscription and support revenue was $30.9 million for Q3 and $83.8 million for nine months.
- Growth reflected more customers, greater user adoption, and additional products sold to existing customers. Customers rose 33% to 1,625 and users rose 31% to 156,774 year over year.
- Operating expenses increased to $31.8 million in Q3 and $91.5 million for nine months. Sales and marketing remained the largest operating expense. Nine-month net loss widened despite higher revenue.
- Non-GAAP gross margin was 82.1% for Q3 and 81.3% for nine months; non-GAAP net loss was $2.2 million and $12.6 million, respectively. These non-GAAP measures exclude specified acquisition, amortization, stock-compensation, tax, and financing items.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $19.6 million; current assets were $68.0 million and current liabilities were $97.7 million. Deferred revenue was $69.8 million.
- Nine-month operating cash flow was positive $1.0 million, versus cash used of $0.2 million in 2015. Investing used $35.1 million, primarily reflecting the Runbook acquisition; financing provided $38.5 million.
- Term-loan carrying value was $64.8 million at quarter-end, with $66.4 million of principal including payment-in-kind interest. No revolving-credit balance was outstanding.
- After quarter-end, the November 2 IPO raised approximately $151.7 million net. On November 3, BlackLine paid approximately $67.7 million, including principal, interest, and prepayment penalties, to repay and terminate its credit facility. Management said cash and IPO proceeds remaining after debt repayment should fund working capital, capital expenditures, and financing needs for at least 12 months.
Material developments, outlook, and risks
- BlackLine acquired Netherlands-based Runbook on August 31 for approximately $34.1 million in cash, funded with a $30 million acquisition term loan and cash on hand. The acquisition added SAP-focused financial-close software and supports European expansion. Goodwill recorded was $21.9 million; acquisition-related costs were approximately $1.4 million.
- Dollar-based net revenue retention declined to 118% at September 30, 2016, from 120% at September 30, 2015 and 119% at June 30, 2016. SAP-related customers represented about 16% of nine-month revenue; the company pays SAP a continuing fee tied to qualifying customer subscriptions.
- No specific revenue or earnings guidance was provided. Management expects continued investment in sales, product development, international expansion, and personnel; it cautioned that future capital needs depend on growth and spending and that additional financing may be needed.
- Key disclosed risks include continuing operating losses, customer renewals and retention, competition, reliance on strategic partners and third-party data centers, cybersecurity and service interruptions, foreign-currency and international regulatory exposure, and integration of Runbook. Goodwill and intangible assets totaled about $242 million and could be impaired if relevant assumptions or market conditions worsen.
- Disclosure controls were deemed ineffective at September 30 because previously identified material weaknesses in financial-reporting controls had not been fully remediated. The weaknesses involved accounting expertise and resources, controls for complex transactions and accounting policies, and segregation of duties. Remediation was ongoing.
- The company reported no litigation expected to have a material adverse effect. Contingent consideration had a fair value of approximately $5.1 million, against a contractual maximum of $8.0 million.
Important facts for investors to verify
- Whether customer retention and expansion trends stabilize, particularly given the reported decline in net revenue retention.
- Whether revenue growth translates into improved operating leverage and progress toward profitability, while tracking cash use and investment needs.
- Whether Runbook integration delivers the anticipated product, SAP, and international benefits without additional material costs or impairment.
- Whether management remediates and tests the material weaknesses in internal controls effectively.
- The post-IPO capital and ownership position: debt was repaid after quarter-end, while principal stockholders held approximately 76.9% of common stock as of November 30, 2016.