BlackLine, Inc. — Q1 2022 Form 10-Q
Reporting period: Quarter ended March 31, 2022; comparison is with Q1 2021. BlackLine provides cloud-based financial accounting and close-management software, primarily through SaaS subscriptions. The filing is unaudited and states quarterly results are not necessarily indicative of full-year results.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $120.2 million | $98.9 million | +22% |
| Subscription and support revenue | $113.5 million | $91.7 million | +24% |
| Professional services revenue | $6.7 million | $7.2 million | -7% |
| GAAP gross margin | 74.5% | 77.9% | -3.4 percentage points |
| Operating loss | $25.4 million | $18.7 million | Loss widened |
| Net loss attributable to BlackLine | $10.0 million | $39.0 million | Loss narrowed |
| Basic and diluted loss per share | $0.17 | $0.67 | Improved |
| Operating cash flow | $0.2 million | $28.5 million | Down $28.3 million |
Non-GAAP gross margin was 78.1%, versus 80.3%; non-GAAP net income attributable to BlackLine was $0.7 million, versus $7.1 million. These are company-defined non-GAAP measures. Revenue growth reflected customer and user additions, sales of more products to existing customers, strategic product sales, and $2.7 million of FourQ revenue. Customers increased 12% to 3,897, users rose 14% to 337,939, and dollar-based net revenue retention increased to 110% from 106%.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $365.5 million and marketable securities were $666.1 million at March 31, 2022, totaling approximately $1.032 billion.
- Convertible notes had $1.4 billion aggregate principal outstanding: $250 million of 2024 Notes and $1.15 billion of 2026 Notes. The balance-sheet carrying amount was $1.380 billion, net of issuance costs.
- Management said existing cash, marketable securities and operating cash flows should cover working capital, capital expenditures and financing obligations for at least 12 months.
- Investing cash outflow was $171.2 million, including $157.7 million paid for FourQ net of cash acquired. Financing cash outflow was $2.9 million. Cash, cash equivalents and restricted cash ended the quarter at $365.8 million.
- Deferred revenue was $242.3 million current; contracted revenue not yet recognized was $661.3 million, with approximately 56% expected to be recognized over the next 12 months.
Material changes and unusual items
- On January 26, 2022, BlackLine acquired FourQ to extend intercompany accounting automation. Purchase consideration was $214.2 million, including $55.9 million of contingent consideration; up to an additional $73.2 million may be payable if milestones are met. The purchase-price allocation was preliminary. Acquired revenue and earnings were not material to the quarter.
- Operating expenses rose to $114.9 million from $95.7 million, with higher sales and marketing and research and development costs, including headcount growth and FourQ-related transaction costs. GAAP gross margin declined, in part amid higher cloud-hosting costs and acquisition-related amortization.
- The $12.9 million income tax benefit included a $14.0 million release of valuation allowance following the acquisition of FourQ deferred tax liabilities. The company continued to maintain a full valuation allowance on U.S. federal and state deferred tax assets.
- Adoption of convertible-debt accounting standard ASU 2020-06 caused a $262.1 million net-of-tax reclassification from equity to debt and a $62.3 million increase to retained earnings. This accounting change substantially reduced reported stockholders’ equity; it was not a new cash borrowing.
Outlook, commentary and risks
The filing provides no numerical revenue or earnings guidance. Management expects larger contracts and a greater focus on strategic products to lengthen sales cycles and make results less predictable. It cited uncertainty from COVID-19 and macroeconomic conditions, including inflation and the war in Ukraine; risks also include customer renewals and spending, competition, hiring and retention, cybersecurity, service interruptions, dependence on third-party cloud providers, and international and privacy regulation. BlackLine said it was migrating customers to Google Cloud Platform, while also using Azure and AWS for certain services. Management reported no material litigation and concluded disclosure controls were effective; no material changes in internal control over financial reporting were identified during the quarter.
Key facts for investors to verify
- Whether subscription growth and 110% retention continue, and whether FourQ contributes meaningfully beyond its immaterial Q1 results.
- Whether gross-margin pressure from hosting costs, headcount and acquired-technology amortization stabilizes.
- How operating cash flow develops after falling to $0.2 million, and how acquisition and contingent-consideration payments affect liquidity.
- Debt maturity, conversion and cash-settlement exposure, including the company’s ability to meet obligations on $1.4 billion of notes.
- Whether the $14.0 million valuation-allowance release and other acquisition-related accounting effects recur; distinguish these items from underlying operating performance.