BlackLine, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter filing; quarterly figures below are unaudited. Amounts are in U.S. dollars.
Business context
BlackLine sells cloud software that automates accounting and finance processes, including financial close management, reconciliations, intercompany accounting and compliance. At year-end, it reported 2,631 customers and 222,619 users, excluding on-premise software. Subscription and support provided about 95% of FY 2018 revenue.
Financial and operating metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $227.8 million | $175.6 million |
| Subscription and support revenue | $217.4 million | $167.1 million |
| Gross profit / margin | $176.9 million / 77.7% | $134.2 million / 76.4% |
| Operating loss | $29.8 million | $30.4 million |
| Net loss attributable to BlackLine | $27.8 million | $33.1 million |
| Operating cash flow | $16.1 million | $6.4 million |
| Cash, cash equivalents and marketable securities | $132.6 million | $112.6 million |
| Long-term debt | None | None |
- FY 2018 revenue increased 30%; subscription and support revenue rose 30%. Customer count grew 19% and users grew 13%.
- Operating expenses were $206.8 million, up from $164.6 million. Sales and marketing was $128.8 million; research and development $30.8 million; general and administrative $47.2 million.
- Non-GAAP net income was $6.4 million versus $1.5 million in 2017; this company-defined measure excludes items including stock-based compensation and acquired-intangible amortization.
- At year-end, current assets were $221.5 million, current liabilities $159.2 million, and deferred revenue $129.1 million. Contracted revenue not yet recognized was $285.0 million; the company expected to recognize approximately 62% within 12 months.
- Cash used in investing activities was $16.0 million, including $6.3 million of property and equipment purchases and $5.7 million of capitalized software development. Cash provided by financing activities was $14.5 million, primarily from stock-option exercises and a Japanese subsidiary investment.
Fourth-quarter results
Q4 2018 revenue was $62.3 million, compared with $50.0 million in Q4 2017. Gross profit was $48.4 million, versus $39.1 million. Net loss attributable to BlackLine was $7.7 million, compared with $4.2 million. Quarterly data are unaudited.
Changes, outlook and risks
- Dollar-based net revenue retention declined to 108% from 112% in 2017 and 116% in 2016. Management cited possible contributors including churn, customer mix, slower product adoption and slower user expansion.
- Management said existing cash, marketable securities and operating cash flows should meet working-capital, capital-expenditure and financing needs for at least 12 months. The filing provides no formal revenue or earnings guidance; management expects spending on sales, product development and international growth to increase.
- SAP entered the reseller channel in Q4 2018. BlackLine also stated that, beginning October 1, 2018, it no longer owed SAP a percentage-based fee on revenue from new customers using SAP ERP.
- BlackLine adopted ASC 606 retrospectively in 2018, restating prior periods. The change affected contract-acquisition-cost accounting and revenue timing for on-premise licenses; subscription revenue recognition was substantially unchanged.
- Material risks include declining retention, longer and less predictable enterprise sales cycles, competition, customer concentration in its Close Process Management solution, cybersecurity and service availability, international and currency exposure, and the ability to scale operations. The company reported no litigation expected to have a material adverse effect.
- Operating lease and purchase obligations totaled $26.8 million at year-end. The company also disclosed up to $8 million of contingent consideration tied to tax benefits, $1.2 million of unrecognized tax benefits with uncertain payment timing, and indemnification obligations whose maximum potential payments are indeterminable.
Important facts for investors to verify
- Whether retention stabilizes or declines further, and whether customer and user growth translate into expansion revenue.
- Whether revenue growth and gross-margin improvement can outpace operating-expense growth and produce sustained GAAP profitability.
- How the SAP reseller relationship affects customer acquisition, partner fees and revenue channels.
- Whether the $285.0 million of contracted-but-unrecognized revenue converts as expected, including the estimated 62% due within 12 months.
- The effects of ASC 606 comparability and the company’s substantial stock-based compensation and capitalized contract-acquisition costs.
- Execution and financial implications of the Japanese joint venture, international expansion, and the planned 2019 lease-accounting adoption, which management expected to materially affect the balance sheet.