BlackLine, Inc. — Q1 2024 Form 10-Q
Reporting period: Quarter ended March 31, 2024. BlackLine provides cloud-based SaaS accounting and finance solutions. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $157.5 | $139.0 | +13% |
| Subscription and support revenue | $149.5 | $130.4 | +15% |
| Professional services revenue | $8.0 | $8.6 | -7% |
| GAAP gross margin | 75.2% | 74.6% | +0.6 percentage points |
| GAAP operating income (loss) | $1.7 | $(15.3) | Improved |
| Net income (loss) attributable to BlackLine | $10.8 | $(12.0) | Improved |
| Diluted GAAP EPS | $0.17 | $(0.20) | Improved |
| Operating cash flow | $50.4 | $22.9 | +$27.6 |
Non-GAAP operating income was $26.8 million, compared with $15.6 million; non-GAAP operating margin was 17.0%, versus 11.2%. These are non-GAAP measures and exclude specified items, including stock-based compensation, intangible amortization and restructuring costs.
At March 31, 2024, cash and cash equivalents were $331.4 million and marketable securities were $913.5 million, or about $1.245 billion combined. Current assets were $1.404 billion and current liabilities were $609.9 million. Convertible notes had $1.4 billion aggregate principal outstanding: $250 million due in 2024 and $1.15 billion due in 2026. Management said available liquidity and operating cash flows should cover working capital, capital expenditures and financing obligations for at least 12 months, and that it expects to make principal and interest payments due during the next 12 months.
Investing activities provided $21.0 million, primarily reflecting net maturities of marketable securities, partly offset by $6.5 million of capitalized software development costs. Financing activities used $10.9 million, primarily for shares withheld for employee tax obligations. The filing does not provide a company-defined free cash flow figure.
Material changes and operating indicators
- Revenue growth was primarily attributed to more customers and users. Customers increased 4% year over year to 4,411; users increased 5% to 387,050.
- Dollar-based net revenue retention was 105%, down from 106% a year earlier and marginally below the 106% reported for December 31, 2023.
- Operating expenses totaled $116.6 million, down from $119.0 million. Sales and marketing and R&D declined, while G&A increased 4% to $30.0 million.
- Interest income rose to $15.4 million from $10.7 million, reflecting higher average interest rates and, to a lesser extent, higher average balances. It contributed to the move from a pretax loss to pretax income.
- Deferred revenue was $309.2 million, including current and noncurrent amounts. Contracted but unrecognized revenue was $825.6 million; BlackLine expects to recognize approximately 58% over the next 12 months.
Outlook, risks and unusual items
- No quantified financial guidance is provided in the supplied filing text. Management reported that economic uncertainty has led some customers to delay or defer purchases, affecting near-term demand. Larger contracts and strategic products may bring longer, less predictable sales cycles.
- Subscription revenue is recognized over contract terms, while customers are generally billed in advance. Consequently, changes in bookings may affect future periods before becoming fully visible in reported revenue. Management cited lower bookings as a factor in the quarter’s decrease in deferred revenue.
- The $250 million 0.125% convertible notes due in 2024 are classified as current liabilities. Both the 2024 and 2026 notes were not convertible at quarter-end. The company intends to use combination settlement if conversions occur, including cash repayment of principal; cash needs at maturity, conversion or repurchase remain relevant risks.
- Restructuring costs were $0.4 million in the quarter, with $0.6 million accrued at March 31. The company said it does not anticipate material additional restructuring expenses.
- FourQ acquisition contingent consideration had a zero carrying liability at quarter-end, although maximum potential payments are $73.2 million if specified milestones are met. Unrecognized tax benefits were $7.6 million; timing of any related cash outflows is uncertain.
- Key disclosed risks include macroeconomic pressure on customer spending and renewals, competition, longer sales cycles, reliance on strategic partners and public-cloud providers, cybersecurity and AI-related risks, foreign exchange exposure, and the ability to meet convertible-note obligations. BlackLine reported no litigation expected to have a material adverse effect and said disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether bookings, deferred revenue and retention stabilize or improve, given management’s comments about delayed purchasing and lower bookings.
- How the 105% net revenue retention rate and customer expansion trends develop in subsequent quarters.
- The company’s plan and liquidity for the $250 million 2024 note maturity, and the terms and potential cash or dilution effects of any conversion or refinancing.
- Whether operating profitability and cash generation persist, considering stock-based compensation of $18.6 million in the quarter and the substantial exclusions in non-GAAP results.
- Progress and cost implications of the migration to Google Cloud Platform, alongside service reliability and cybersecurity risks.
- Whether potential FourQ contingent consideration, unrecognized tax liabilities, or other commitments result in material cash payments.