SEC Filing | BlackLine, Inc.

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bl-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________

FORM 10-Q

______________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37924

______________________________________________________________

BlackLine, Inc.

(Exact name of Registrant as specified in its charter)

______________________________________________________________


Delaware			46-3354276
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

21300 Victory Boulevard, 12th Floor

Woodland Hills, CA 91367

(Address of principal executive offices, including zip code)

(818) 223-9008

(Registrant’s telephone number, including area code)

______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	BL	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding at August 4, 2023 was 60,981,071.

BlackLine, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended June 30, 2023

TABLE OF CONTENTS


	Part I. Financial Information

Item 1.	Unaudited Condensed Consolidated Financial Statements	4

	Unaudited Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022	4

	Unaudited Condensed Consolidated Statements of Operations for the Quarters and Six Mo nths Ended June 30, 2023 and 2022	5

	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss ) for the Quarters and Six Months Ended June 30, 2023 and 2022	6

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Quarters and Six Months Ended June 30, 2023 and 2022	7

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	9

	Notes to Unaudited Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	34

Part II. Other Information

Item 1.	Legal Proceedings	35

Item 1A.	Risk Factors	35

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 5.	Other Information	61

Item 6.	Exhibits	61

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “would,” “continue,” “ongoing” or the negative of these terms or other comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding future financial and operational performance; statements concerning growth strategies including acquisitions, extension of distribution channels and strategic relationships, product innovation, international expansion, customer growth and expansion, customer service initiatives, expectations regarding our acquisitions, expectations regarding contract size and increased focus on strategic products, expectations for hiring new talent and expanding our sales organization; our ability to accurately forecast revenue and appropriately plan expenses and investments; the demand for and benefits from the use of our current and future solutions; market acceptance of our solutions; volatility and uncertainty in the banking and financial services sector; and changes in the competitive environment in our industry and the markets in which we operate and our liquidity and capital resources. These statements are based upon our historical performance and our current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith beliefs and assumptions as of that time with respect to future events and are subject to risks and uncertainty. If any of these risks or uncertainties materialize or if any assumptions prove incorrect, actual performance or results may differ materially from those expressed in or suggested by the forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainty, and assumptions that are difficult to predict, including those identified below, under “Part II-Other Information, Item 1A. Risk Factors” and elsewhere herein. Forward-looking statements should not be read as a guarantee of future performance or results, and you should not place undue reliance on such statements. Furthermore, we undertake no obligation to revise or update any forward-looking statements for any reason, except as required by applicable law.

Unless the context otherwise requires, the terms “BlackLine, Inc.,” “the Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to the consolidated operations of BlackLine, Inc. and its consolidated subsidiaries as a whole.

Part I. Financial Information

Item 1. Financial Statements

BLACKLINE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except shares and par values)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	204,514	$	200,968
Marketable securities (amortized cost of $923,044 and $875,456 at June 30, 2023 and December 31, 2022, respectively)	921,737		874,083
Accounts receivable, net of allowances of $2,934 and $2,282 at June 30, 2023 and December 31, 2022, respectively	129,798		150,858
Prepaid expenses and other current assets	27,697		23,658
Total current assets	1,283,746		1,249,567
Capitalized software development costs, net	36,349		32,070
Property and equipment, net	17,009		19,811
Intangible assets, net	80,645		90,864
Goodwill	443,861		443,861
Operating lease right-of-use assets	21,272		14,708
Other assets	92,484		92,775
Total assets	$	1,975,366	$	1,943,656
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,899	$	14,964
Accrued expenses and other current liabilities	45,152		58,600
Deferred revenue, current	280,050		279,325
Finance lease liabilities, current	1,031		989
Operating lease liabilities, current	4,394		5,943
Contingent consideration, current	16,510		8,000
Total current liabilities	355,036		367,821
Finance lease liabilities, noncurrent	266		785
Operating lease liabilities, noncurrent	17,855		9,292
Convertible senior notes, net	1,387,047		1,384,306
Contingent consideration, noncurrent	2,610		33,549
Deferred tax liabilities, net	5,618		5,568
Deferred revenue, noncurrent	643		343
Other long-term liabilities	3,641		6,229
Total liabilities	1,772,716		1,807,893
Commitments and contingencies (Note 12)
Redeemable non-controlling interest (Note 3)	26,288		23,895
Stockholders' equity:
Common stock, $0.01 par value, 500,000,000 shares authorized, 60,947,365 and 60,016,824 issued and outstanding at June 30, 2023 and December 31, 2022, respectively	610		600
Additional paid-in capital	429,320		385,709
Accumulated other comprehensive loss	(1,529)		(1,472)
Accumulated deficit	(252,039)		(272,969)
Total stockholders' equity	176,362		111,868
Total liabilities, redeemable non-controlling interest, and stockholders' equity	$	1,975,366	$	1,943,656

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
Subscription and support	$	135,881	$	120,683	$	266,307	$	234,208
Professional services	8,693		7,794		17,251		14,505
Total revenues	144,574		128,477		283,558		248,713
Cost of revenues
Subscription and support	30,630		25,795		59,142		49,951
Professional services	6,486		7,128		13,245		13,645
Total cost of revenues	37,116		32,923		72,387		63,596
Gross profit	107,458		95,554		211,171		185,117
Operating expenses
Sales and marketing	62,749		66,000		124,680		126,027
Research and development	26,802		27,902		53,907		53,150
General and administrative	(148)		14,345		28,828		43,997
Restructuring costs	135		—		1,149		—
Total operating expenses	89,538		108,247		208,564		223,174
Income (loss) from operations	17,920		(12,693)		2,607		(38,057)
Other income (expense)

Interest income	12,542		1,715		23,207		2,233
Interest expense	(1,470)		(1,457)		(2,925)		(2,904)
Other income (expense), net	11,072		258		20,282		(671)
Income (loss) before income taxes	28,992		(12,435)		22,889		(38,728)
Provision for (benefit from) income taxes	926		(464)		1,554		(13,326)
Net income (loss)	28,066		(11,971)		21,335		(25,402)
Net income (loss) attributable to redeemable non-controlling interest	320		(121)		405		(124)
Adjustment attributable to redeemable non-controlling interest	(3,103)		(1,185)		2,089		(4,602)
Net income (loss) attributable to BlackLine, Inc.	$	30,849	$	(10,665)	$	18,841	$	(20,676)
Basic net income (loss) per share attributable to BlackLine, Inc.	$	0.51	$	(0.18)	$	0.31	$	(0.35)
Shares used to calculate basic net income (loss) per share	60,700		59,441		60,445		59,283
Diluted net income (loss) per share attributable to BlackLine, Inc.	$	0.45	$	(0.18)	$	0.30	$	(0.35)
Shares used to calculate diluted net income (loss) per share	71,801		59,441		71,801		59,283

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income (loss)	$	28,066	$	(11,971)	$	21,335	$	(25,402)
Other comprehensive income (loss):
Net change in unrealized gains (losses) on marketable securities, net of tax of $0 for the quarters and six months ended June 30, 2023 and 2022	(1,200)		(843)		66		(890)
Foreign currency translation	(179)		(432)		(224)		(698)
Other comprehensive loss	(1,379)		(1,275)		(158)		(1,588)
Comprehensive income (loss)	26,687		(13,246)		21,177		(26,990)
Less comprehensive income (loss) attributable to redeemable non-controlling interest:
Net income (loss) attributable to redeemable non-controlling interest	320		(121)		405		(124)
Foreign currency translation attributable to redeemable non-controlling interest	(81)		(210)		(101)		(338)
Comprehensive income (loss) attributable to redeemable non-controlling interest	239		(331)		304		(462)
Comprehensive income (loss) attributable to BlackLine, Inc.	$	26,448	$	(12,915)	$	20,873	$	(26,528)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands except share data)


	Quarter Ended June 30, 2023
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balance at March 31, 2023	60,478	$	605	$	396,403	$	(231)	$	(279,785)	$	116,992
Stock option exercises	150	2		4,691		—		—		4,693
Vesting of restricted stock units	203	2		—		—		—		2
Issuance of common stock through employee stock purchase plan	116	1		5,290		—		—		5,291
Acquisition of common stock for tax withholding obligations	—	—		(1,019)		—		—		(1,019)
Stock-based compensation	—	—		20,852		—		—		20,852
Other comprehensive loss	—	—		—		(1,298)		—		(1,298)
Net income attributable to BlackLine, Inc., including adjustment to redeemable non-controlling interest	—	—		3,103		—		27,746		30,849
Balance at June 30, 2023	60,947	$	610	$	429,320	$	(1,529)	$	(252,039)	$	176,362


	Six Months Ended June 30, 2023
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares	Amount		Capital		Income (Loss)		Deficit		Total


Balance at December 31, 2022	60,017	$	600	$	385,709	$	(1,472)	$	(272,969)	$	111,868
Stock option exercises	359	4		11,911		—		—		11,915
Vesting of restricted stock units	455	5		—		—		—		5
Issuance of common stock through employee stock purchase plan	116	1		5,290		—		—		5,291
Acquisition of common stock for tax withholding obligations	—	—		(13,422)		—		—		(13,422)
Stock-based compensation	—	—		41,921		—		—		41,921
Other comprehensive loss	—	—		—		(57)		—		(57)
Net income attributable to BlackLine, Inc., including adjustment to redeemable non-controlling interest	—	—		(2,089)		—		20,930		18,841
Balance at June 30, 2023	60,947	$	610	$	429,320	$	(1,529)	$	(252,039)	$	176,362


	Quarter Ended June 30, 2022
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares	Amount		Capital		Income (Loss)		Deficit		Total


Balance at March 31, 2022	59,293	$	593	$	318,297	$	113	$	(252,875)	$	66,128
Stock option exercises	46	—		1,029		—		—		1,029
Vesting of restricted stock units	136	2		—		—		—		2
Issuance of common stock through employee stock purchase plan	98	1		4,465		—		—		4,466
Acquisition of common stock for tax withholding obligations	—	—		(1,815)		—		—		(1,815)
Stock-based compensation	—	—		21,103		—		—		21,103

Other comprehensive income	—	—		—		(1,065)		—		(1,065)
Net loss attributable to BlackLine, Inc., including adjustment to redeemable non-controlling interest	—	—		1,185		—		(11,850)		(10,665)
Balance at June 30, 2022	59,573	$	596	$	344,264	$	(952)	$	(264,725)	$	79,183


	Six Months Ended June 30, 2022
	Common Stock			Additional Paid-in		Accumulated Other Comprehensive		Accumulated
	Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balance at December 31, 2021	58,984	$	590	$	625,883	$	298	$	(301,735)	$	325,036
Cumulative-effect adjustment related to adoption of ASU 2020-06, net of tax	—	—		(324,418)		—		62,288		(262,130)
Balance at January 1, 2022	58,984	590		301,465		298		(239,447)		62,906
Stock option exercises	117	1		2,415		—		—		2,416
Vesting of restricted stock units	374	4		—		—		—		4
Issuance of common stock through employee stock purchase plan	98	1		4,465		—		—		4,466
Acquisition of common stock for tax withholding obligations	—	—		(6,002)		—		—		(6,002)
Stock-based compensation	—	—		37,319		—		—		37,319



Other comprehensive loss	—	—		—		(1,250)		—		(1,250)
Net loss attributable to BlackLine, Inc., including adjustment to redeemable non-controlling interest	—	—		4,602		—		(25,278)		(20,676)
Balance at June 30, 2022	59,573	$	596	$	344,264	$	(952)	$	(264,725)	$	79,183

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net income (loss) attributable to BlackLine, Inc.	$	18,841	$	(20,676)
Net income (loss) and adjustment attributable to redeemable non-controlling interest (Note 3)	2,494		(4,726)
Net income (loss)	21,335		(25,402)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	24,350		19,806
Change in fair value of contingent consideration	(22,429)		(15,858)
Amortization of debt issuance costs	2,741		2,730
Stock-based compensation	40,386		36,511

Noncash lease expense	3,192		2,861
Accretion of purchase discounts on marketable securities, net	(15,768)		(564)
Net foreign currency (gains) losses	902		(826)
Deferred income taxes	(52)		(14,429)
Provision for (benefit from) credit losses	(19)		81
Changes in operating assets and liabilities, net of impact of acquisition:
Accounts receivable	20,701		6,169
Prepaid expenses and other current assets	(3,956)		3,510
Other assets	395		(5,198)
Accounts payable	(6,082)		4,127
Accrued expenses and other current liabilities	(13,227)		(11,385)
Deferred revenue	1,025		4,206
Operating lease liabilities	(3,512)		(4,106)
Lease incentive receipts	240		491
Other long-term liabilities	(2,804)		3,359
Net cash provided by operating activities	47,418		6,083
Cash flows from investing activities
Purchases of marketable securities	(725,120)		(799,749)
Proceeds from maturities of marketable securities	693,300		637,250

Capitalized software development costs	(12,318)		(9,766)
Purchases of property and equipment	(2,829)		(7,303)
Acquisition, net of cash acquired	—		(157,738)

Net cash used in investing activities	(46,967)		(337,306)
Cash flows from financing activities




Principal payments under finance lease obligations	(485)		(195)
Proceeds from exercises of stock options	11,920		2,420
Proceeds from employee stock purchase plan	5,291		4,466
Acquisition of common stock for tax withholding obligations	(13,422)		(6,002)
Financed purchases of property and equipment	—		(84)
Net cash provided by financing activities	3,304		605
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash	(207)		(687)
Net increase (decrease) in cash, cash equivalents, and restricted cash	3,548		(331,305)
Cash, cash equivalents, and restricted cash, beginning of period	201,207		539,991
Cash, cash equivalents, and restricted cash, end of period	$	204,755	$	208,686
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents at end of period	$	204,514	$	208,454

Restricted cash included within other assets at end of period	241		232
Total cash, cash equivalents, and restricted cash at end of period shown in the consolidated statements of cash flows	$	204,755	$	208,686

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOWS DISCLOSURE

(in thousands)


	Six Months Ended June 30,
	2023		2022
Non-cash financing and investing activities
Adjustment for adoption of ASU 2020-06	$	—	$	262,130
Estimated fair value of contingent consideration	$	—	$	55,947
Stock-based compensation capitalized for software development	$	1,818	$	962
Capitalized software development costs included in accounts payable and accrued expenses and other current liabilities at end of period	$	927	$	1,123
Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities at end of period	$	108	$	684



Leasehold improvements paid directly by landlord	$	271	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

BLACKLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – The Company

BlackLine, Inc. and its subsidiaries (the “Company” or “BlackLine”) provide financial accounting close solutions delivered primarily as Software as a Service (“SaaS”). The Company’s solutions enable its customers to address various aspects of their financial close process including account reconciliations, variance analysis of account balances, journal entry capabilities, and certain types of data matching capabilities.

The Company is a holding company and conducts its operations through its wholly-owned subsidiary, BlackLine Systems, Inc. (“BlackLine Systems”). BlackLine Systems funded its business with investments from its founder and cash flows from operations until September 3, 2013, when the Company acquired BlackLine Systems, and Silver Lake Sumeru and Iconiq acquired a controlling interest in the Company, which is referred to as the “2013

Acquisition."

On October 2, 2020, the Company acquired Rimilia Holdings Ltd. (“Rimilia”), which is referred to as the “Rimilia Acquisition.”

On January 26, 2022, the Company acquired FourQ Systems, Inc. (“FourQ”), hereinafter referred to as the “FourQ Acquisition.” The primary purpose of the FourQ Acquisition was to enhance our existing intercompany accounting automation capabilities by driving end-to-end automation of traditionally manual intercompany accounting processes. The purchase accounting allocation was finalized during the quarter ended March 31, 2023. Refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023 for additional information.

The Company is headquartered in Woodland Hills, California. During the quarter ended June 30, 2023, the Company entered into a five-year lease extension for the office in Woodland Hills. This extension increased both the right-of-use asset and lease liability by approximately $7.3 million. The Company has other local offices in Pleasanton, California; New York, New York; and Westport, Connecticut. We also have international office locations in Australia, Canada, France, Germany, India, Japan, the Netherlands, Poland, Romania, Singapore, and the United Kingdom.

Note 2 – Basis of Presentation, Significant Accounting Policies and Recently-Issued Accounting Pronouncements

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the Securities and Exchange Commission (“SEC”) on February 23, 2023. The unaudited condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the condensed consolidated financial statements. The unaudited condensed consolidated balance sheet at December 31, 2022 was derived from audited financial statements, but does not include all disclosures required by GAAP. The operating results for the quarter ended June 30, 2023 are not necessarily indicative of the results expected for the full year ending December 31, 2023.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, primarily those related to determining the stand-alone selling price for separate deliverables in the Company’s subscription revenue arrangements, allowance for doubtful accounts, cancellations and credits, fair value of assets and liabilities assumed in a business combination, recoverability of goodwill and long-lived assets, useful lives associated with long-lived assets and right-of-use assets, income taxes, contingencies, fair value of contingent consideration, fair value of convertible senior notes,

redemption value of redeemable non-controlling interest, and the valuation and assumptions underlying stock-based compensation. These estimates are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company at June 30, 2023 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s valuation of contingent consideration, the allowance for credit losses, and the carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements for the quarter ended June 30, 2023, the Company’s future assessment of these accounting matters and other factors could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Significant accounting policies

The Company’s significant accounting policies are detailed in “Note 2 - Significant Accounting Policies" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes to the Company’s significant accounting policies.

Recently-adopted accounting pronouncements

There have been no recently adopted accounting pronouncements since the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Recently-issued accounting pronouncements

The Company has evaluated all recent accounting pronouncements and believes that none of them will have a material effect on the company’s financial statements.

Note 3 – Redeemable Non-Controlling Interest

In September 2018, the Company entered into an agreement with Japanese Cloud Computing and M30 LLC (the “Investors”) to engage in the investment, organization, management, and operation of a Japanese subsidiary (“BlackLine K.K.”) of the Company that is focused on the sale of the Company's products in Japan. In October 2018, the Company initially contributed approximately $4.5 million in cash in exchange for 51% of the outstanding common stock of BlackLine K.K. In November 2021, the Company made a further investment in BlackLine K.K. of $2.3 million that, including additional investments in BlackLine K.K. of $2.2 million by existing third-party investors in November 2021, maintained the Company's majority ownership of 51%. As the Company continues to control a majority stake in BlackLine K.K., the entity has been consolidated.

All of the common stock held by the Investors is callable by the Company or puttable by the Investors upon certain contingent events. Should the call or put option be exercised, the redemption value will be determined based upon a prescribed formula derived from the discrete revenues of BlackLine K.K. and the Company and may be settled, at the Company’s discretion, with Company stock or cash. As a result of the put right available to the Investors in the future, the redeemable non-controlling interest in BlackLine K.K. is classified outside of permanent equity in the Company’s consolidated balance sheets, and the balance is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest's share of earnings, or its estimated redemption value. The resulting changes in the estimated redemption amount are recorded within retained earnings or, in the absence of retained earnings, additional paid-in-capital.

The following table summarizes the activity in the redeemable non-controlling interest for the periods indicated below:


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Balance at beginning of period	$	29,152	$	25,151	$	23,895	$	28,699
Net income (loss) attributable to redeemable non-controlling interest (excluding adjustment to non-controlling interest)	320		(121)		405		(124)
Foreign currency translation	(81)		(210)		(101)		(338)
Adjustment to redeemable non-controlling interest	(3,103)		(1,185)		2,089		(4,602)
Balance at end of period	$	26,288	$	23,635	$	26,288	$	23,635

Note 4 – Intangible Assets and Goodwill

The carrying value of intangible assets was as follows (in thousands):


	June 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade name	$	15,977	$	(15,711)	$	266
Developed technology	129,258		(60,391)		68,867
Customer relationships	26,089		(15,886)		10,203
Defensive patent	2,333		(1,024)		1,309
	$	173,657	$	(93,012)	$	80,645


	December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade name	$	15,977	$	(14,913)	$	1,064
Developed technology	129,258		(54,462)		74,796
Customer relationships	26,089		(12,552)		13,537
Defensive patent	2,333		(866)		1,467
	$	173,657	$	(82,793)	$	90,864

The following table represents the changes in goodwill (in thousands):


Balance at December 31, 2022	$	443,861
Additions from acquisitions	—
Balance at June 30, 2023	$	443,861

Note 5 – Balance Sheet Components

Investments in Marketable Securities

Investments in marketable securities presented within current assets on the condensed consolidated balance sheets consisted of the following (in thousands):


	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable securities
U.S. treasury securities	$	461,996	$	5	$	(837)	$	461,164
Corporate bonds	34,964		11		(15)		34,960
Commercial paper	259,073		—		—		259,073
U.S. government agencies	167,011		15		(486)		166,540
	$	923,044	$	31	$	(1,338)	$	921,737


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Marketable securities
U.S. treasury securities	$	418,941	$	9	$	(1,047)	$	417,903
Corporate bonds	64,597		3		(296)		64,304
Commercial paper	278,406		—		—		278,406
U.S. government agencies	113,512		40		(82)		113,470
	$	875,456	$	52	$	(1,425)	$	874,083

The Company’s marketable securities as of June 30, 2023 have a contractual maturity of less than 2 years. All of our available-for-sale securities are available for use in our current operations and are categorized as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date.

The fair values of available-for-sale securities, by remaining contractual maturity, were as follows (in thousands):


	June 30, 2023
	Amortized Cost		Fair Value
Maturing within 1 year	$	897,253	$	896,043
Maturing between 1 and 2 years	25,791		25,694
	$	923,044	$	921,737

Refer to "Note 6 - Fair Value Measurements" for additional information.

Net gains and losses related to maturities of marketable securities that were reclassified from accumulated other comprehensive loss to earnings and included in interest income in the accompanying condensed consolidated statements of operations, were $8.3 million and $15.8 million for the quarter and six months ended June 30, 2023 and $0.7 million and $0.6 million for the quarter and six months ended June 30, 2022.

Net gains and losses are determined using the specific identification method. During the quarters and six months ended June 30, 2023 and 2022, there were no realized gains or losses related to sales of marketable securities recognized in the Company's accompanying condensed consolidated statements of operations.

Marketable securities in a continuous loss position for less than 12 months had an estimated fair value of $562.3 million and $521.8 million, and $1.3 million and $1.4 million of unrealized losses, at June 30, 2023 and December 31, 2022, respectively. There were no marketable securities in a continuous loss position for greater than 12 months at June 30, 2023 and December 31, 2022, respectively.

The Company's marketable securities are considered to be of high credit quality and accordingly, there was no allowance for credit losses related to marketable securities as of June 30, 2023 or December 31, 2022.

Other Assets

Deferred customer contract acquisition costs are included in other assets in the accompanying condensed consolidated balance sheets and totaled $89.1 million and $89.1 million at June 30, 2023 and December 31, 2022, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were comprised of the following (in thousands):


	June 30, 2023		December 31, 2022
Accrued salaries and employee benefits	$	24,705	$	39,043
Accrued income and other taxes payable	7,985		9,415
Accrued restructuring costs	150		1,737
Other accrued expenses and current liabilities	12,312		8,405
	$	45,152	$	58,600

Note 6 – Fair Value Measurements

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis by level, within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):


	June 30, 2023
	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market funds	$	108,155	$	—	$	—	$	108,155
Commercial paper	—		40,648		—		40,648

U.S. government agencies	—		—		—		—
Marketable securities
U.S. treasury securities	461,164		—		—		461,164
Corporate bonds	—		34,960		—		34,960
Commercial paper	—		259,073		—		259,073
U.S. government agencies	—		166,540		—		166,540

Total assets	$	569,319	$	501,221	$	—	$	1,070,540
Liabilities
Contingent consideration	$	8,000	$	—	$	11,120	$	19,120
Total liabilities	$	8,000	$	—	$	11,120	$	19,120


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents
Money market funds	$	101,919	$	—	$	—	$	101,919
Commercial paper	—		59,405		—		59,405

Marketable securities
U.S. treasury securities	417,903		—		—		417,903
Corporate bonds	—		64,301		—		64,301
Commercial paper	—		278,406		—		278,406
U.S. government agencies	—		113,471		—		113,471
Total assets	$	519,822	$	515,583	$	—	$	1,035,405
Liabilities
Contingent consideration	$	8,000	$	—	$	33,549	$	41,549
Total liabilities	$	8,000	$	—	$	33,549	$	41,549

The following table summarizes the changes in the contingent consideration liability (in thousands):


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning fair value	$	44,655	$	74,863	$	41,549	$	20,732
Additions in the period	—		—		—		55,947
Change in fair value	(25,535)		(14,042)		(22,429)		(15,858)
Ending fair value	$	19,120	$	60,821	$	19,120	$	60,821

The Company classified the marketable debt securities as available-for-sale debt securities at the time of purchase and reevaluated such classification as of each balance sheet date. The valuation techniques used to measure the fair values of our instruments that were classified as Level 1 were derived from quoted market prices for identical instruments in active markets. The valuation techniques used to measure the fair values of Level 2 instruments were derived from broker reports that utilized quoted market prices for similar instruments.

In conjunction with the 2013 Acquisition, option holders of BlackLine Systems, Inc. were allowed to cancel their stock option rights and receive a cash payment equal to the amount of calculated gain (less applicable expense and other items) had they exercised their stock options and then sold their common shares as part of the 2013 Acquisition. As a condition of the 2013 Acquisition, the Company is obligated to pay additional cash consideration to certain equity holders since the Company realized taxable income for the year ended December 31, 2022. The maximum contingent cash consideration payable of $8.0 million is due on or before November 15, 2023. Accordingly, at June 30, 2023, the additional cash consideration was classified as a Level 1 liability.

As a condition of the FourQ Acquisition that occurred on January 26, 2022, the Company agreed to pay additional cash consideration if FourQ realized certain firm-specific targets, including the amount and timing of new and incremental combined bookings from FourQ and BlackLine, and revenues from a specified FourQ customer over a three-year period subsequent to the acquisition date. The maximum cash consideration to be distributed is $73.2 million. Changes in the significant inputs used in the fair value measurement, specifically a change in new and incremental actual and forecasted combined bookings from FourQ and the Company, can significantly impact the fair value of the contingent consideration liability. At June 30, 2023, the fair value of the contingent consideration liability was $11.1 million.

Changes in the fair value of contingent consideration are recorded as general and administrative expenses in the unaudited condensed consolidated statements of operations.

Note 7 – Convertible Senior Notes

2024 Notes

The 2024 Notes consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Liability:
Principal	$	250,000	$	250,000

Unamortized debt issuance costs	(1,424)		(2,069)
Net carrying amount	$	248,576	$	247,931

The Company carries the 2024 Notes at face value less unamortized issuance costs on the accompanying condensed consolidated balance sheets and presents the fair value for disclosure purposes only. The estimated fair value was determined based on the actual bids and offers of the 2024 Notes in an over-the-counter market on the last trading day of the period. The estimated fair value of the 2024 Notes, based on a market approach at June 30, 2023, was approximately $253.0 million, which represents a Level 2 valuation.

During the quarter ended June 30, 2023, the Company recognized $0.3 million of interest expense related to the amortization of issuance costs and $0.1 million of coupon interest expense. During the quarter ended June 30, 2022, the Company recognized $0.3 million of interest expense related to the amortization of debt issuance costs and $0.1 million of coupon interest expense.

During the six months ended June 30, 2023, the Company recognized $0.6 million of interest expense related to the amortization of issuance costs and $0.2 million of coupon interest expense. During the six months ended

June 30, 2022, the Company recognized $0.6 million of interest expense related to the amortization of debt issuance costs and $0.2 million of coupon interest expense.

At June 30, 2023, the remaining life of the 2024 Notes was approximately 13 months.

The 2024 Notes were not convertible at June 30, 2023. It is the Company’s current intent to settle conversions of the Notes through “combination settlement”, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.

There have been no changes to the condition of the 2024 Capped Calls since December 31, 2022, and the Capped Calls are still outstanding as of June 30, 2023.

2026 Notes

The 2026 Notes consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Liability:
Principal	$	1,150,000	$	1,150,000

Unamortized debt issuance costs	(11,529)		(13,625)
Net carrying amount	$	1,138,471	$	1,136,375

The Company carries the 2026 Notes at face value less unamortized issuance costs on the accompanying condensed consolidated balance sheets and presents the fair value for disclosure purposes only. The estimated fair value was determined based on the actual bids and offers of the 2026 Notes in an over-the-counter market on the last trading day of the period. The estimated fair value of the 2026 Notes, based on a market approach at June 30, 2023, was approximately $981.8 million, which represents a Level 2 valuation.

During the quarter and six months ended June 30, 2023, the Company recognized $1.1 million and $2.1 million of interest expense related to the amortization of issuance costs, respectively. During the quarter and six months ended June 30, 2022, the Company recognized $1.1 million and $2.1 million of interest expense related to the amortization of issuance costs, respectively.

At June 30, 2023, the remaining life of the 2026 Notes was approximately 33 months.

The 2026 Notes were not convertible at June 30, 2023. It is the Company’s current intent to settle conversions of the Notes through “combination settlement”, which involves repayment of the principal portion in cash and any excess of the conversion value over the principal amount in shares of its common stock.

There have been no changes to the condition of the 2026 Capped Calls since December 31, 2022, and the Capped Calls are still outstanding as of June 30, 2023.

Note 8 – Restructuring Costs

On December 7, 2022, the Company announced its intention to reduce its global workforce by approximately 5%, or approximately 95 total positions. The actions were primarily in response to cost reduction initiatives as the Company continues to focus on key growth priorities. The actions were substantially completed in the fourth quarter of fiscal year 2022 and were subject to local law and consultation requirements, which extends the process in certain countries.

During the quarter and six months ended June 30, 2023, the Company recorded $0.1 million and $1.1 million, respectively, for one-time termination benefits related to these actions, which occurred in the U.S. and various international locations. The charges were recorded pursuant to ASC 420, Exit or Disposal Cost Obligations.

The restructuring liability is included in accrued expenses and other current liabilities in the consolidated balance sheet was as follows:



Balance at December 31, 2022	$	1,737
Restructuring charges and adjustments	1,149
Cash payments	(2,736)
Balance at June 30, 2023	$	150

All plan adjustments were changes in estimates whereby increases and decreases in charges were generally recorded to operating expenses in the period of adjustments.

Note 9 – Equity Awards

Stock-based compensation expense

Stock-based compensation expense was as follows (in thousands):


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenues	$	2,770	$	2,249	$	5,122	$	3,963
Sales and marketing	6,182		7,438		12,665		13,362
Research and development	3,708		3,810		7,532		6,707
General and administrative	7,288		7,112		15,067		12,479
	$	19,948	$	20,609	$	40,386	$	36,511

For the quarters ended June 30, 2023 and 2022, stock-based compensation capitalized as an asset was $1.0 million and $0.6 million, respectively.

For the six months ended June 30, 2023 and 2022, stock-based compensation capitalized as an asset was $1.8 million and $1.0 million, respectively.

Stock options - service-only vesting conditions

The following table summarizes activity for awards that contain service-only vesting conditions (in thousands):


Outstanding at December 31, 2022			2,431
Granted			—
Exercised			(364)
Forfeited/canceled			(80)
Outstanding at June 30, 2023			1,987

Restricted stock units - service-only vesting conditions

The following table summarizes activity for restricted stock units that contain service-only vesting conditions (in thousands):


Nonvested at December 31, 2022			2,202
Granted			1,271
Vested			(605)
Forfeited/canceled			(269)
Nonvested at June 30, 2023			2,599

Restricted stock units - performance and service conditions

The following table summarizes activity for restricted stock units with performance and service vesting conditions with grant dates established (in thousands):


Nonvested at December 31, 2022			69
Granted			163
Performance adjustment			(28)
Vested			(41)

Forfeited/canceled			(48)
Nonvested at June 30, 2023			115

The following table summarizes activity for restricted stock units with performance and service vesting conditions with no grant dates established (in thousands):


Nonvested at December 31, 2022			138
Granted			120
Forfeited/canceled			(59)
Nonvested at June 30, 2023			199

Restricted stock units - performance, market, and service conditions

The following table summarizes activity for restricted stock units with performance, market, and service-based conditions (in thousands):


Nonvested at December 31, 2022			189
Granted			—
Vested			—
Forfeited/canceled			(189)
Nonvested at June 30, 2023			—

Note 10 – Income Taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date income (loss), adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate of 21% primarily as a result of state taxes, foreign taxes, and changes in the Company’s valuation allowance for income taxes. For the quarters ended June 30, 2023 and 2022, the Company recorded $0.9 million tax expense and $0.5 million income tax benefit, respectively. The income tax expense for the quarter ended June 30, 2023 compared to the income tax benefit for the quarter ended June 30, 2022, resulted primarily from changes in the mix of profitable jurisdictions.

For the six months ended June 30, 2023 and 2022, the Company recorded $1.6 million tax expense and $13.3 million in income tax benefit, respectively. The $14.9 million difference resulted primarily from the partial release of $14.2 million of existing valuation allowance recognized during the six months ended June 30, 2022, along with changes in the mix of profitable jurisdictions.

For purposes of calculating its income tax attributed to continuing operations, the Company continued to maintain a full valuation allowance on its U.S. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets will not be realized.

Note 11 – Net Income (Loss) per Share

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share amounts):


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Basic net income (loss) per share
Numerator:
Net income (loss) attributable to BlackLine, Inc.	$	30,849	$	(10,665)	$	18,841	$	(20,676)
Denominator:
Weighted average shares	60,700		59,441		60,445		59,283
Basic net income (loss) per share attributable to BlackLine, Inc.	$	0.51	$	(0.18)	$	0.31	$	(0.35)

Diluted net income (loss) per share
Numerator:
Net income (loss) attributable to BlackLine, Inc.	$	30,849	$	(10,665)	$	18,841	$	(20,676)
Interest expense	1,458		—		2,897		—
Net income (loss) attributable to BlackLine, Inc. for diluted calculation	$	32,307	$	(10,665)	$	21,738	$	(20,676)
Denominator:
Weighted average shares	60,700		59,441		60,445		59,283
Dilutive effect of securities	777		—		1,032		—
Dilutive effect of convertible senior notes	10,324		—		10,324		—
Shares used to calculate diluted net income (loss) per share	71,801		59,441		71,801		59,283
Diluted net income( loss) per share attributable to BlackLine, Inc.	$	0.45	$	(0.18)	$	0.30	$	(0.35)

The weighted average impact of potentially dilutive securities that were excluded from the diluted per share calculations because they were anti-dilutive were as follows (in thousands):


	Quarter Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Stock options - service-only vesting conditions	695	2,612	1,532	2,660

Restricted stock units - service-only vesting conditions	2,330	2,226	2,335	1,813
Restricted stock units - performance and service conditions	—	67	32	34
Restricted stock units - performance, market, and service conditions	139	—	147	—

Total shares excluded from net loss per share	3,164	4,905	4,046	4,507

Additionally, approximately 3.4 million and 6.9 million weighted average shares underlying the conversion option in the 2024 Notes and the 2026 Notes, respectively, are excluded from the calculation of diluted net loss per share attributable to common stockholders for the quarter and six months ended June 30, 2022 as the effect would be anti-dilutive. The shares are subject to adjustment, up to approximately 4.7 million shares and 9.9 million shares for the 2024 Notes and the 2026 Notes, respectively, if certain corporate events occur prior to the maturity dates or if the Company issues a notice of redemption.

Note 12 – Commitments and Contingencies

Litigation—From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company is not currently a party to any legal proceedings, nor is it aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably.

Indemnification—In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers, vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of its breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company has never paid a material claim, nor has it been sued in connection with these indemnification arrangements. At June 30, 2023 and December 31, 2022, the Company has not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements was not probable or reasonably estimable.

Note 13 – Unearned Revenue and Performance Obligations

Revenue totaling $195.2 million and $170.7 million was recognized during the six months ended June 30, 2023 and 2022, respectively, that was previously included in the deferred revenue balance at December 31, 2022 and 2021, respectively.

Contracted but unrecognized revenue was $778.6 million at June 30, 2023, of which the Company expects to recognize approximately 57% over the next 12 months and the remainder thereafter.

Note 14 – Geographic Information

The Company disaggregates its revenue from contracts with customers by geographic location, as it believes it best depicts how the nature, amount, timing, and uncertainty of its revenues and cash flows are affected by economic factors.

The following table sets forth the Company’s revenues by geographic region (in thousands):


	Quarter Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
United States	$	104,052	$	91,483	$	204,064	$	177,165
International	40,522		36,994		79,494		71,548
	$	144,574	$	128,477	$	283,558	$	248,713

Note 15 – Subsequent Events

On August 7, 2023, the Compensation Committee of the Board of Directors of BlackLine, Inc. approved restricted stock unit grants totaling 0.1 million shares. Each restricted stock unit entitles the recipient to receive one share of common stock upon vesting of the award. The restricted stock units will vest as to one-fourth of the total number of units awarded on the first anniversary of August 20, 2023 and quarterly thereafter for 12 consecutive quarters.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes that are included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 23, 2023 (“Annual Report on Form 10-K”). This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those discussed in the section entitled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We have created a comprehensive cloud-based software platform designed to transform and modernize accounting and finance operations for organizations of all types and sizes. Our secure, scalable platform supports critical accounting processes, such as intercompany accounting, certain types of data matching, the financial close, account reconciliations, and controls assurance. By introducing software to automate these processes and to enable them to function continuously, we empower our customers to improve the integrity of their financial reporting, increase efficiency in their accounting and finance processes and enhance real-time visibility into their operations.

At June 30, 2023, we had 377,585 individual users across 4,279 customers. Additionally, we continue to build strategic relationships with technology vendors, professional services firms, business process outsourcers, and resellers.

Our cloud-based products include Account Reconciliations, Transaction Matching, Task Management, Journal Entry, Variance Analysis, Financial Reporting Analytics, Compliance, BlackLine Cash Application, Credit & Risk Management, Collections Management, Disputes & Deductions, Team & Task Management, AR Intelligence, Intercompany Create, Intercompany Balance and Resolve, and Intercompany Netting and Settlement. These products are offered to customers as scalable solutions that support critical accounting processes, such as the financial close, account reconciliations, cash application, intercompany accounting, and compliance.

We derived approximately 94% of our revenue primarily from subscriptions to our cloud-based software platform and approximately 6% from professional services for the six months ended June 30, 2023. Our subscription contracts have initial non-cancellable terms of one year to three years with renewal options. Approximately two-thirds of new contracts in 2022 and the first half of 2023 had an initial term of three years. We price our subscriptions based on a number of factors, primarily the number of users having access to the products and the number of products purchased by the customer. We typically invoice customers annually in advance for subscriptions, which is initially recorded as deferred revenue and recognized ratably over the term of the customer contract. The first year of subscription fees are typically payable within 30 days after execution of a contract, and thereafter upon renewal.

Professional services consist of implementation and consulting services. Although our platform is ready to use immediately after a new customer has access to it, we typically help customers implement our solutions. We also provide consulting services to help customers optimize the use of our products. We invoice customers for our consulting services on a time-and-materials basis and recognize that revenue as services are performed. A limited number of our customers are provided professional services for a fixed fee which we invoice in advance and is initially recorded as deferred revenue and recognized on a proportional-performance basis as the services are performed.

We sell our solutions primarily through our direct sales force, which leverages our relationships with technology vendors, professional services firms and business process outsourcers. In particular, our solution integrates with SAP’s enterprise resource planning (“ERP”) solutions, and SAP is part of the reseller channel that we use in the ordinary course of business. SAP has the ability to resell our solutions, as an SAP solution-extension (“SolEx”), for which we receive a percentage of the revenues. In the first quarter of 2022, we entered into an agreement with Google Cloud in which the two companies will collaborate on joint selling and go-to-market activities and bring enhanced automation solutions for finance and accounting to new and existing customers.

Our ability to maximize the lifetime value of our customer relationships will depend, in part, on the willingness of customers to purchase additional user licenses and products from us. We rely on our sales and customer success teams to support and grow our existing customers by maintaining high customer satisfaction and educating customers on the value all our products provide.

The length of our sales cycle depends on the size of a potential customer and contract, as well as the type of solution or product being purchased. The sales cycle for our global enterprise customers is generally longer than that of our mid-market customers. In addition, the length of the sales cycle tends to increase for larger contracts and for more complex, strategic products like Intercompany Financial Management. As we continue to focus on increasing our average contract size and selling more strategic products, we expect our sales cycle to lengthen and become less predictable, which could cause variability in our results for any particular period.

We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the software industry. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into during the fourth quarter or last month of any quarter will generally come up for renewal at that same time in subsequent years. This seasonality is reflected in our revenues, though the impact to overall annual or quarterly revenues is minimal due to the fact that we recognize subscription revenue ratably over the term of the customer contract.

For the quarters ended June 30, 2023 and 2022, we had revenues totaling $144.6 million and $128.5 million, respectively. We generated net income attributable to BlackLine, Inc. of $30.8 million and incurred a net loss attributable to BlackLine, Inc. of $10.7 million for the quarters ended June 30, 2023 and 2022, respectively.

For the six months ended June 30, 2023 and 2022, we had revenues totaling $283.6 million and $248.7 million, respectively. We generated net income attributable to BlackLine, Inc. of $18.8 million and incurred a net loss attributable to BlackLine, Inc. of $20.7 million for the six months ended June 30, 2023 and 2022, respectively.

Global Macroeconomic Factors

Our operating results may vary based on the impact of changes in our industry or the global economy on us or our customers. General macroeconomic conditions, such as a recession or rising inflation rates, an economic downturn in the United States or internationally, adverse business conditions and liquidity concerns, or bank failures or instability in the financial services section, could adversely affect demand for our products and make it difficult to accurately forecast and plan our future business activities. In recent quarters, as a result of economic uncertainty, we have seen customers delay and defer purchasing decisions, which has adversely impacted our near-term demand.

Restructuring Costs

On December 7, 2022, we announced our decision to commit to a restructuring plan that was designed to focus on key growth priorities. Restructuring costs consisted of one-time termination benefits that were primarily incurred in the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023. Refer to "Note 8 - Restructuring Costs" for additional information on this event.

Key Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make strategic decisions.


	Jun. 30, 2022		Sep. 30, 2022		Dec. 31, 2022		Mar. 31, 2023		Jun. 30, 2023
Dollar-based net revenue retention rate	110	%	109	%	107	%	106	%	106	%
Number of customers	4,003		4,060		4,188		4,236		4,279
Number of users	347,932		354,924		366,522		369,493		377,585

Dollar-based net revenue retention rate. We believe that dollar-based net revenue retention rate is an important metric to measure the long-term value of customer agreements and our ability to retain and grow our relationships with existing customers over time. We calculate dollar-based net revenue retention rate as the implied monthly subscription and support revenue at the end of a period for the base set of customers from which we generated subscription revenue in the year prior to the calculation, divided by the implied monthly subscription and support revenue one year prior to the date of calculation for that same customer base. This calculation does not reflect implied monthly subscription and support revenue for new customers added during the one-year period but does include the effect of customers who terminated during the period. We define implied monthly subscription and support revenue as the total amount of minimum subscription and support revenue contractually committed to,

under each of our customer agreements over the entire term of the agreement, divided by the number of months in the term of the agreement. At June 30, 2023, our dollar-based net revenue retention rate was unchanged from the quarter ended March 31, 2023. Our ability to maximize the lifetime value of our customer relationships will depend, in part, on the willingness of the customer to purchase additional user licenses and products from us. We rely on our customer success and sales teams to support and grow our existing customers by maintaining high customer satisfaction and educating the customer on the value all our products provide.

Number of customers. We believe that our ability to expand our customer base is an indicator of our market penetration and the growth of our business. We define a customer as a company that contributes to our subscription and support revenue as of the measurement date. In situations where an organization has multiple subsidiaries or divisions, each entity that is invoiced as a separate entity is treated as a separate customer. However, where an existing customer requests its invoice be divided for the sole purpose of restructuring its internal billing arrangement without any incremental increase in revenue, such customer continues to be treated as a single customer. For the quarters and six months ended June 30, 2023 and 2022, no single customer accounted for more than 10% of our total revenues.

Number of users. Since our customers generally pay fees based on the number of users of our platform within their organization, we believe the total number of users is an indicator of the growth of our business. While the fees for the majority of the products we sell are user-based, we are seeing an increasing volume of transactions for our non-user based strategic products, such as Transaction Matching, Intercompany, and BlackLine Cash Application.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the non-GAAP measures below are useful to us and our investors in evaluating our business. These non-GAAP financial measures are useful because they provide consistency and comparability with our past performance, facilitate period-to-period comparisons of operations and facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.


	Quarter Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
GAAP gross profit	$	107,458		$	95,554		$	211,171		$	185,117
GAAP gross margin	74.3		%	74.4		%	74.5		%	74.4		%
GAAP net income (loss) attributable to BlackLine, Inc.	$	30,849		$	(10,665)		$	18,841		$	(20,676)


	Quarter Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Non-GAAP gross profit	$	113,885		$	101,134		$	223,557		$	195,020
Non-GAAP gross margin	78.8		%	78.7		%	78.8		%	78.4		%
Non-GAAP net income attributable to BlackLine, Inc.	$	30,728		$	5,025		$	55,828		$	5,727

Non-GAAP Gross Profit and Non-GAAP Gross Margin. Non-GAAP gross profit is defined as GAAP revenues less GAAP cost of revenue adjusted for the amortization of acquired developed technology, transaction-related costs (including, but not limited to, accounting, legal, and advisory fees related to the transaction, as well as transaction-related retention bonuses), and stock-based compensation. Non-GAAP gross margin is defined as non-GAAP gross profit divided by GAAP revenues. We believe that presenting non-GAAP gross margin is useful to investors as it eliminates the impact of certain non-cash expenses and allows a direct comparison of gross margin between periods.

Non-GAAP Net Income (Loss) Attributable to BlackLine and Diluted Non-GAAP Net Income (Loss) Attributable to BlackLine, Inc. Per Share. Non-GAAP net income (loss) attributable to BlackLine is defined as GAAP net income (loss) attributable to BlackLine adjusted for the impact of the provision for (benefit from) income taxes related to acquisitions, amortization of intangible assets, stock-based compensation, the amortization of debt issuance costs from our convertible notes, the change in the fair value of contingent consideration, transaction-related costs, legal settlement gains or costs, impairment of cloud computing implementation costs, restructuring costs, the adjustment

to the value of the redeemable non-controlling interest to the redemption amount, and loss on extinguishment of convertible senior notes. Diluted non-GAAP net income attributable to BlackLine, Inc. per share includes the adjustment for shares resulting from the elimination of stock-based compensation. We believe that presenting non-GAAP net income (loss) attributable to BlackLine is useful to investors as it eliminates the impact of items that have been impacted by our acquisitions and other related costs in order to allow a direct comparison of net loss between all periods presented.

Reconciliation of Non-GAAP Financial Measures

The following table presents a reconciliation of gross profit, gross margin and net income (loss), the most comparable GAAP measures, to non-GAAP gross profit, non-GAAP gross margin and non-GAAP net income:


	Quarter Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except percentages)
Non-GAAP Gross Profit:
Gross profit	$	107,458		$	95,554		$	211,171		$	185,117
Amortization of acquired developed technology	2,980			2,957			5,929			5,294
Stock-based compensation(1)	3,273			2,249			6,070			3,963
Transaction-related costs	174			374			387			646
Total non-GAAP gross profit	$	113,885		$	101,134		$	223,557		$	195,020
Gross margin	74.3		%	74.4		%	74.5		%	74.4		%
Non-GAAP gross margin	78.8		%	78.7		%	78.8		%	78.4		%
Non-GAAP Net Income Attributable to BlackLine, Inc.:
Net income (loss) attributable to BlackLine, Inc.	$	30,849		$	(10,665)		$	18,841		$	(20,676)
Provision for (benefit from) income taxes	286			145			105			(12,991)

Amortization of intangible assets	5,134			5,206			10,219			9,368
Stock-based compensation(1)	20,364			20,517			41,104			36,357
Amortization of debt issuance costs	1,379			1,373			2,741			2,730


Change in fair value of contingent consideration	(25,535)			(14,042)			(22,429)			(15,858)