BlackLine, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. BlackLine provides cloud-based financial accounting close software on a SaaS basis. The filing was signed August 5, 2021.
Financial results and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $102.1 million | $83.3 million | $201.0 million | $165.9 million |
| Gross profit | $78.6 million | $66.5 million | $155.5 million | $133.1 million |
| GAAP gross margin | 76.9% | 79.9% | 77.4% | 80.2% |
| Operating loss | $(9.7) million | $(3.3) million | $(28.4) million | $(10.7) million |
| Net loss attributable to BlackLine | $(25.4) million | $(8.3) million | $(64.4) million | $(21.2) million |
| Basic and diluted loss per share | $(0.44) | $(0.15) | $(1.11) | $(0.38) |
| Non-GAAP net income attributable to BlackLine | $9.6 million | $11.9 million | $16.7 million | $17.9 million |
Q2 subscription and support revenue was $95.2 million, up 22%; professional services revenue was $7.0 million, up 29%. Total revenue grew 23% in Q2 and 21% in the first half. At June 30, the company reported 3,598 customers and 304,224 users, up 15% and 10%, respectively, year over year. Dollar-based net revenue retention was 106%, compared with 108% a year earlier.
Cash and cash equivalents were $643.3 million and marketable securities were $524.9 million at June 30, totaling approximately $1.17 billion. Six-month operating cash flow was $40.9 million, compared with $18.1 million in 2020. Investing activities used $358.9 million, principally reflecting net purchases of marketable securities; financing activities provided $594.1 million, mainly from the 2026 notes issuance, net of the partial 2024 notes repurchase and capped-call purchase.
Aggregate principal of convertible notes outstanding was $1.40 billion: $250 million of 2024 notes and $1.15 billion of 2026 notes. Their combined net carrying amount was approximately $1.08 billion. Current liabilities were $259.8 million, including $206.6 million of deferred revenue. Management said existing cash, investments and operating cash flow should cover working capital, capital expenditures and financing obligations for at least 12 months.
Material changes and management commentary
- Revenue growth reflected more customers, user additions, product expansion within existing customers, and increased sales of strategic products not based on user counts.
- GAAP gross margin declined 3.0 percentage points in Q2. Management cited higher cloud-hosting costs, including migration of customers to Google Cloud Platform and Rimilia-related hosting, increased compensation and headcount, and higher amortization.
- Operating expenses rose 26% in Q2 to $88.2 million. Research and development increased 59% and general and administrative increased 25%; sales and marketing increased 18%.
- Interest expense increased to $15.7 million in Q2, principally due to amortization of debt discounts and issuance costs on the convertible notes. First-half interest expense also included a $7.0 million loss on extinguishment associated with the partial repurchase of the 2024 notes.
- Non-GAAP net income was positive, but it excludes items including stock-based compensation, debt discount amortization, contingent-consideration remeasurement and, for the first half, the debt extinguishment loss. GAAP results remained loss-making.
Outlook, risks and contingencies
- The filing provides no specific quarterly or full-year revenue or earnings guidance. Management stated that available liquidity should be sufficient for at least the next 12 months; future capital needs depend on growth, hiring, product development, international expansion and strategic transactions.
- Holders could convert the 2024 notes during the quarter ending September 30, 2021 after the conversion condition was met. BlackLine reported no conversion requests through the filing date and said it currently intended to settle conversions through a combination of cash for principal and shares for any excess conversion value. The 2026 notes were not convertible at June 30.
- Key risks include COVID-19 effects on customer spending and sales cycles; customer renewal and expansion; competition; cybersecurity and service availability; migration to third-party cloud infrastructure; and foreign-exchange, privacy-regulation and execution risks. The company noted increased cybersecurity investment as remote work continues.
- Contingent-consideration liabilities totaled $30.4 million, including an earn-out tied to Rimilia ARR targets; the maximum potential cash consideration was $30 million for Rimilia and $8 million related to the 2013 acquisition. Redeemable non-controlling interest was $18.0 million.
- The company reported no litigation expected to have a material adverse effect and no material change in internal control over financial reporting; management judged disclosure controls effective at a reasonable assurance level.
Most important facts for investors to verify
- Whether customer, user and revenue growth can continue while net retention remains below the prior-year level and GAAP losses widen.
- Whether higher hosting, staffing and research costs stabilize enough to improve gross margin and operating leverage.
- The cash and potential dilution consequences if holders convert the 2024 notes, and the terms and settlement risks of both convertible-note issues and capped calls.
- How much reported non-GAAP profitability depends on exclusions, particularly stock-based compensation and debt-related costs.
- Whether COVID-19, cybersecurity, cloud migration, customer renewals and international regulatory risks materially affect sales, service delivery or cash flow.