BlackLine, Inc. — Q1 2021 Form 10-Q
Business context and period. BlackLine provides cloud-based financial accounting close and automation software, primarily through SaaS subscriptions. This unaudited report covers the quarter ended March 31, 2021; comparisons are with Q1 2020 unless noted. The company reported 3,482 customers and 297,060 users at quarter-end. Its October 2020 acquisition of Rimilia expanded its accounts-receivable automation business.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $98.9 million | $82.6 million | Up 20% |
| Subscription and support revenue | $91.7 million | $77.0 million | Up 19% |
| Professional services revenue | $7.2 million | $5.6 million | Up 29% |
| GAAP gross margin | 77.9% | 80.6% | Down 2.7 percentage points |
| Operating loss | $18.7 million | $7.3 million | Loss widened |
| Net loss attributable to BlackLine | $39.0 million | $12.8 million | Loss widened |
| Basic and diluted loss per share | $0.67 | $0.23 | Loss per share increased |
| Cash provided by operating activities | $28.5 million | $8.5 million | Increased |
Non-GAAP gross margin was 80.3%, versus 82.4%; non-GAAP net income attributable to BlackLine was $7.1 million, versus $6.0 million. These company-defined non-GAAP measures exclude specified items and should be considered alongside GAAP results.
At March 31, 2021, cash and cash equivalents were $848.3 million and marketable securities were $309.0 million, or approximately $1.16 billion combined. The company reported $1.4 billion of Notes principal outstanding: $250 million of 2024 Notes and $1.15 billion of 2026 Notes. Their combined net carrying amount was approximately $1.07 billion. Management said available cash, investments, and operating cash flow should meet working-capital, capital-expenditure, and financing needs for at least 12 months.
Operating cash flow benefited from collections, including a $21.0 million decrease in accounts receivable, and a $2.3 million increase in deferred revenue. Investing activities used $138.8 million, primarily reflecting net purchases of marketable securities. Financing activities provided $591.4 million, principally from the 2026 Notes issuance, offset by repurchase of part of the 2024 Notes and purchase of capped calls.
Material changes and unusual items
- Revenue growth reflected more customers and users, additional products sold to existing customers, and growth in non-user-based strategic products. Customer count increased 14% and users 9% year over year.
- Dollar-based net revenue retention declined to 106% from 110% a year earlier; management said COVID-19-related customer financial pressures contributed to lower technology spending.
- Cost of revenue rose 36%, faster than revenue, and GAAP gross margin fell to 77.9%. The filing cites higher personnel and stock compensation, software costs, depreciation and amortization, and developed-technology amortization.
- Operating expenses increased 30% to $95.7 million. General and administrative expense rose 63%, including a $7.7 million increase in fair value of contingent consideration, primarily related to Rimilia, and higher personnel and stock-based compensation.
- Interest expense increased to $14.8 million, including a $7.0 million loss on extinguishment from the partial repurchase of 2024 Notes and $2.3 million of discount and issuance-cost amortization on the new 2026 Notes.
- In March 2021, BlackLine issued $1.15 billion of 0.00% convertible senior notes due 2026, repurchased $250 million principal of its 2024 Notes, and paid approximately $102.4 million for 2026 capped calls. The company intends to use combination settlement for conversions, with principal paid in cash and excess conversion value generally settled in shares.
Outlook, commentary, and risks
The filing provides no numerical revenue, earnings, or margin guidance. Management noted that the quarter’s results are not necessarily indicative of full-year results and that longer, less predictable sales cycles may create quarterly variability, particularly as the company pursues larger contracts and strategic products.
COVID-19’s effects remained uncertain. Potential impacts include delayed purchasing decisions, longer sales cycles, lower customer spending or renewals, pressure for concessions, and cybersecurity exposure from remote work. The company increased cybersecurity investment and said work, travel, and event limitations were expected to continue at least through the first half of 2021.
Other significant risks include customer retention and expansion, competition, execution of growth and international plans, integration of acquisitions, reliance on cloud providers and channel partners, data security and privacy regulation, and the company’s history of losses. Holders could convert the 2024 Notes during the quarter ending June 30, 2021 after the conversion condition was met; no conversion requests had been received through the filing date. The company stated it had no legal proceedings expected to have a material adverse effect. Disclosure controls were assessed as effective at a reasonable assurance level, with no material changes in internal control identified during the quarter.
Important facts for investors to verify
- Whether customer retention and expansion stabilize, given the 106% net revenue retention rate and management’s comments about customer spending.
- Whether subscription growth can offset rising service-delivery costs and operating expenses, and whether gross-margin pressure persists.
- The cash, dilution, and balance-sheet consequences of any 2024 Note conversions, future conversions or repurchases, and the company’s combination-settlement approach.
- How Rimilia performs against ARR targets tied to up to $30 million of contingent consideration; the related liability’s fair value rose to $24.7 million from $17.1 million at year-end.
- Whether COVID-19, cybersecurity, privacy, cloud-provider, and sales-cycle risks materially affect customer demand, renewals, or operations.