bl-10q_20160930.htm

 

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 September 30, 2016

OR

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

(818) 223-9008

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

 

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  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

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 as of November 30, 2016 was 51,268,844.

 

 


BlackLine Inc

Quarterly Report on Form 10-Q

For the Quarterly Period Ended September 30, 2016

TABLE OF CONTENTS

Part I. Financial Information

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

4

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

4

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and September 30, 2015

5

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2016

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and September 30, 2015

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

29

 

 

Part II. Other Information

 

 

 

Item 1.

Legal Proceedings

30

 

 

 

Item 1A.

Risk Factors

30

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

 

 

 

Item 6.

Exhibits

53

 

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 extension of distribution channels and strategic relationships, product innovation, international expansion, customer growth, 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; and changes in the competitive environment in our industry and the markets in which we operate. 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 uncertainties.  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, uncertainties, 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.

Throughout this document “Silver Lake Sumeru” refers to either or both of Silver Lake Sumeru Fund, L.P. and Silver Lake Technology Investors Sumeru, L.P., and references to “Iconiq” refer to any or all of Iconiq Strategic Partners, L.P., ICONIQ Strategic Partners-B, L.P. and Iconiq Strategic Partners Co-Invest, L.P., BL Series.  We refer to Silver Lake Sumeru, Iconiq, Therese Tucker and Mario Spanicciati collectively as our Principal Stockholders.

 

3


Part 1 – Financial Information

Item 1. Financial Statements

BLACKLINE, INC

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except shares and par values)

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,586

 

 

$

15,205

 

Accounts receivable, net

 

 

36,761

 

 

 

24,235

 

Deferred sales commissions

 

 

7,229

 

 

 

6,246

 

Prepaid expenses and other current assets

 

 

4,456

 

 

 

2,801

 

Total current assets

 

 

68,032

 

 

 

48,487

 

Capitalized software development costs, net

 

 

4,113

 

 

 

2,967

 

Property and equipment, net

 

 

11,857

 

 

 

12,419

 

Intangible assets, net

 

 

57,434

 

 

 

56,828

 

Goodwill

 

 

185,052

 

 

 

163,154

 

Other assets

 

 

4,747

 

 

 

2,895

 

Total assets

 

$

331,235

 

 

$

286,750

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,456

 

 

$

4,648

 

Accrued expenses and other current liabilities

 

 

17,485

 

 

 

15,012

 

Deferred revenue

 

 

69,774

 

 

 

52,750

 

Short-term portion of contingent consideration

 

 

2,008

 

 

 

2,008

 

Total current liabilities

 

 

97,723

 

 

 

74,418

 

Term loan, net

 

 

64,836

 

 

 

28,267

 

Common stock warrant liability

 

 

5,200

 

 

 

5,500

 

Contingent consideration

 

 

3,137

 

 

 

2,859

 

Deferred tax liabilities

 

 

3,874

 

 

 

5,907

 

Other long-term liabilities

 

 

3,917

 

 

 

3,631

 

Total liabilities

 

 

178,687

 

 

 

120,582

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 500,000,000 shares authorized,

 

 

 

 

 

 

 

 

   41,316,829 issued and outstanding as of September 30, 2016 and

 

 

 

 

 

 

 

 

   40,720,327 issued and 40,673,327 outstanding as

 

 

 

 

 

 

 

 

   of December 31, 2015

 

 

413

 

 

 

407

 

Treasury stock, 0 shares and 47,000 shares at cost at

 

 

 

 

 

 

 

 

   September 30, 2016 and December 31, 2015, respectively

 

 

 

 

 

(254

)

Additional paid-in capital

 

 

223,805

 

 

 

214,171

 

Accumulated deficit

 

 

(71,670

)

 

 

(48,156

)

Total stockholders' equity

 

 

152,548

 

 

 

166,168

 

Total liabilities and stockholders' equity

 

$

331,235

 

 

$

286,750

 

 

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

 

 

 

4


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription and support

 

$

30,853

 

 

$

20,786

 

 

$

83,830

 

 

$

56,666

 

Professional services

 

 

1,343

 

 

 

875

 

 

 

3,953

 

 

 

2,467

 

Total revenues

 

 

32,196

 

 

 

21,661

 

 

 

87,783

 

 

 

59,133

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription and support

 

 

6,440

 

 

 

5,119

 

 

 

18,515

 

 

 

14,220

 

Professional services

 

 

1,101

 

 

 

824

 

 

 

3,029

 

 

 

2,162

 

Total cost of revenues

 

 

7,541

 

 

 

5,943

 

 

 

21,544

 

 

 

16,382

 

Gross profit

 

 

24,655

 

 

 

15,718

 

 

 

66,239

 

 

 

42,751

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

19,037

 

 

 

14,740

 

 

 

56,279

 

 

 

39,694

 

Research and development

 

 

5,087

 

 

 

4,904

 

 

 

15,552

 

 

 

12,938

 

General and administrative

 

 

7,698

 

 

 

5,916

 

 

 

19,633

 

 

 

14,968

 

Total operating expenses

 

 

31,822

 

 

 

25,560

 

 

 

91,464

 

 

 

67,600

 

Loss from operations

 

 

(7,167

)

 

 

(9,842

)

 

 

(25,225

)

 

 

(24,849

)

Other expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,294

)

 

 

(822

)

 

 

(3,134

)

 

 

(2,466

)

Change in fair value of the common

   stock warrant liability

 

 

 

 

 

80

 

 

 

300

 

 

 

(170

)

Other expense, net

 

 

(1,294

)

 

 

(742

)

 

 

(2,834

)

 

 

(2,636

)

Loss before income taxes

 

 

(8,461

)

 

 

(10,584

)

 

 

(28,059

)

 

 

(27,485

)

Benefit from income taxes

 

 

(1,842

)

 

 

(3,849

)

 

 

(4,564

)

 

 

(9,958

)

Net loss

 

$

(6,619

)

 

$

(6,735

)

 

$

(23,495

)

 

$

(17,527

)

Net loss per share, basic and diluted

 

$

(0.16

)

 

$

(0.17

)

 

$

(0.58

)

 

$

(0.43

)

Weighted average common shares

   outstanding, basic and diluted

 

 

40,824,314

 

 

 

40,655,741

 

 

 

40,746,481

 

 

 

40,550,742

 

 

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

 

 

 

5


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except shares)

 

 

 

Common Stock

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Shares

Outstanding

 

 

Amount

 

 

Treasury Stock,

at cost

 

 

Paid-in

Capital

 

 

Accumulated

Deficit

 

 

Total

 

Balance at December 31, 2015

 

 

40,673,327

 

 

$

407

 

 

$

(254

)

 

$

214,171

 

 

$

(48,156

)

 

$

166,168

 

Stock option exercises

 

 

451,315

 

 

 

4

 

 

 

 

 

 

2,192

 

 

 

 

 

 

2,196

 

Common Stock Issuance

 

 

192,187

 

 

 

2

 

 

 

 

 

 

 

3,073

 

 

 

 

 

 

 

3,075

 

Retirement of treasury stock

 

 

 

 

 

 

 

 

254

 

 

 

(235

)

 

 

(19

)

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

4,604

 

 

 

 

 

 

4,604

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,495

)

 

 

(23,495

)

Balance at September 30, 2016

 

 

41,316,829

 

 

$

413

 

 

$

 

 

$

223,805

 

 

$

(71,670

)

 

$

152,548

 

 

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

 

 

 

6


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(23,495

)

 

$

(17,527

)

Adjustments to reconcile net loss to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,690

 

 

 

10,630

 

Accretion of debt discount and paid in kind interest

 

 

2,083

 

 

 

2,008

 

Change in fair value of common stock warrant liability

 

 

(300

)

 

 

170

 

Change in fair value of contingent consideration

 

 

278

 

 

 

39

 

Stock-based compensation

 

 

4,534

 

 

 

3,870

 

Deferred income taxes

 

 

(4,820

)

 

 

(10,018

)

Changes in operating assets and liabilities, net of effects of the acquisition:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,933

)

 

 

(6,939

)

Deferred sales commissions

 

 

(983

)

 

 

(2,560

)

Prepaid expenses and other current assets

 

 

(936

)

 

 

110

 

Other assets

 

 

(150

)

 

 

(220

)

Accounts payable

 

 

3,250

 

 

 

1,220

 

Accrued expenses and other current liabilities

 

 

1,886

 

 

 

4,558

 

Deferred revenue

 

 

17,535

 

 

 

12,467

 

Other long-term liabilities

 

 

(590

)

 

 

2,042

 

Net cash provided by (used in) operating activities

 

 

1,049

 

 

 

(150

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisition, net of cash acquired

 

 

(31,488

)

 

 

 

Capitalized software development costs

 

 

(2,326

)

 

 

(1,506

)

Purchase of property and equipment

 

 

(1,308

)

 

 

(7,346

)

Net cash used in investing activities

 

 

(35,122

)

 

 

(8,852

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from term loan, net of issuance costs

 

 

34,469

 

 

 

 

Principal payments on capital lease obligations

 

 

(124

)

 

 

 

Proceeds from issuance of common stock

 

 

3,075

 

 

 

 

Payments of deferred offering costs

 

 

(1,162

)

 

 

 

Repurchase of common stock

 

 

 

 

 

(29

)

Proceeds from exercise of stock options

 

 

2,196

 

 

 

1,339

 

Net cash provided by financing activities

 

 

38,454

 

 

 

1,310

 

Net increase (decrease) in cash and cash equivalents

 

 

4,381

 

 

 

(7,692

)

Cash and cash equivalents, beginning of period

 

 

15,205

 

 

 

25,707

 

Cash and cash equivalents, end of period

 

$

19,586

 

 

$

18,015

 

 

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

 

 

 

7


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOW DISCLOSURE

(in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Supplemental disclosures of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

924

 

 

$

404

 

Cash paid for income taxes

 

$

176

 

 

$

13

 

Non-cash financing and investing activities

 

 

 

 

 

 

 

 

Capitalized software developed costs included in accounts payable and

   accrued expenses and other current liabilities

 

$

107

 

 

$

75

 

Purchases of property and equipment included in accounts payable and

   accrued expenses and other current liabilities

 

$

149

 

 

$

1,557

 

Stock-based compensation capitalized for software development

 

$

70

 

 

$

46

 

Deferred offering costs included in accounts payable and accrued

   expenses and other current liabilities

 

$

2,186

 

 

$

203

 

Term loan issuance costs included in accounts payable and accrued

   expenses and other current liabilities

 

$

143

 

 

$

 

 

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

 

 

 

8


BlackLine, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

 

 

Note 1 – Company overview

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

The Company is headquartered in Los Angeles, California and has offices in Chicago, Atlanta, New York, Vancouver, London, Paris, Frankfurt, Johannesburg, Sydney, Melbourne, Kuala Lumpur, the Netherlands and Singapore.

 

 

Note 2 – Basis of presentation and summary of significant accounting policies

The accompanying 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 condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2015 included in the Company’s prospectus related to the Company’s initial public offering, dated October 27, 2016 (the “Prospectus”), pursuant to Rule 424 (b) under the Securities Act of 1933.  The accompanying condensed consolidated balance sheet as of September 30, 2016, the condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015, the condensed consolidated statement of cash flows for the nine months ended September 30, 2016 and 2015, and the condensed consolidated statement of stockholders’ equity for the nine months ended September 30, 2016 are unaudited. The unaudited interim condensed consolidated financial statements 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 operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results expected for the full year ending December 31, 2016.

There have been no significant changes in the accounting policies from those disclosed in the audited consolidated financial statements and the related notes presented in the Prospectus.

Reverse stock split

On October 12, 2016, the Company effected a 1-for-5 reverse stock split of its outstanding common stock.  All share and per share amounts for all periods presented in these unaudited condensed consolidated financial statements and notes thereto, have been adjusted retrospectively, where applicable, to reflect this reverse stock split.

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.  Actual amounts could differ from those estimates.

Business combinations

The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition.  Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values on the acquisition date.  Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.  

Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expense in the consolidated statements of operations.

The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities.  Determining the fair value of assets acquired and liabilities assumed requires

9


management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparable companies.  The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

Intangible assets

Intangible assets primarily consist of acquired developed technology, customer relationships, trade name and non-complete agreements which were acquired as part of the Company’s acquisitions of BlackLine Systems, Inc in September 2013 and Runbook Company B.V. (“Runbook”) in August 2016.  The Company determines the appropriate useful life of its intangible assets by performing an analysis of expected cash flows of the acquired assets.  Intangible assets are amortized over their estimated useful lives using the straight-line method, which approximates the pattern in which the economic benefits are consumed.  The estimated useful lives of the Company’s finite-lived intangible assets are as follows:

 

 

 

Useful Lives

Trade name

 

1 - 10 years

Developed technology

 

6 - 8 years

Non-compete agreements

 

2 - 5 years

Customer relationships

 

8 - 10 years

 

Segments

Management has determined that the Company has one operating segment. The Company’s chief executive officer, who is the Company’s chief operating decision maker, reviews financial information on a consolidated and aggregate basis, together with certain operating metrics principally to make decisions about how to allocate resources and to measure the Company’s performance.

Fair value of financial instruments

ASC 820, Fair Value Measurements (“ASC 820”) require entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value.  Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

 

Level 1:

Quoted prices in active markets for identical or similar assets and liabilities.

 

Level 2:

Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets or liabilities.

 

Level 3:

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of September 30, 2016 and December 31, 2015, the carrying value of cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates fair value due to the short-term nature of such instruments.  The carry value of long-term debt, excluding related debt discounts, approximates its fair value based on rates available to the Company for debt with similar terms and maturities.

10


The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 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):

 

 

 

September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

14,470

 

 

$

 

 

$

 

 

$

14,470

 

Total Assets

 

$

14,470

 

 

$

 

 

$

 

 

$

14,470

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock warrant liability

 

$

 

 

$

 

 

$

5,200

 

 

$

5,200

 

Contingent consideration

 

 

 

 

 

 

 

 

5,145

 

 

 

5,145

 

Total Liabilities

 

$

 

 

$

 

 

$

10,345

 

 

$

10,345

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,990

 

 

$

 

 

$

 

 

$

15,990

 

Total Assets

 

 

15,990

 

 

$

 

 

$

 

 

$

15,990

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock warrant liability

 

$

 

 

$

 

 

$

5,500

 

 

$

5,500

 

Contingent consideration

 

 

 

 

 

 

 

 

4,867

 

 

 

4,867

 

Total Liabilities

 

$

 

 

$

 

 

$

10,367

 

 

$

10,367

 

 

There were no changes to the valuation techniques used to measure asset and liability fair values on a recurring basis during the nine months ended September 30, 2016.

The following table summarizes the changes in the common stock warrant liability and contingent consideration liability (in thousands) for the three and nine months ended September 30, 2016 and 2015:

 

 

 

Contingent

 

 

Common Stock

 

 

 

Consideration

 

 

Warrant Liability

 

Fair value as of June 30, 2016

 

$

5,010

 

 

$

5,200

 

Change in fair value

 

 

135

 

 

 

 

Fair value as of September 30, 2016

 

$

5,145

 

 

$

5,200

 

 

 

 

 

 

 

 

 

 

 

 

Contingent

 

 

Common Stock

 

 

 

Consideration

 

 

Warrant Liability

 

Fair value as of June 30, 2015

 

$

4,852

 

 

$

5,330

 

Change in fair value

 

 

13

 

 

 

(80

)

Fair value as of September 30, 2015

 

$

4,865

 

 

$

5,250

 

 

 

 

 

 

 

 

 

 

 

 

Contingent

 

 

Common Stock

 

 

 

Consideration

 

 

Warrant Liability

 

Fair value as of December 31, 2015

 

$

4,867

 

 

$

5,500

 

Change in fair value

 

 

278

 

 

 

(300

)

Fair value as of September 30, 2016

 

$

5,145

 

 

$

5,200

 

 

 

 

 

 

 

 

 

 

 

 

Contingent

 

 

Common Stock

 

 

 

Consideration

 

 

Warrant Liability

 

Fair value as of December 31, 2014

 

$

4,826

 

 

$

5,080

 

Change in fair value

 

 

39

 

 

 

170

 

Fair value as of September 30, 2015

 

$

4,865

 

 

$

5,250

 

11


 

Net loss per share

Basic and diluted loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding. As the Company has net losses for the periods presented all potentially dilutive common stock, which are comprised of stock options and warrants, are antidilutive.

As of September 30, 2016 and 2015, the following potentially dilutive shares have been excluded from the calculation of diluted net loss per share attributable to common stockholders because they are anti-dilutive:

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Options to purchase common stock

 

 

5,246,516

 

 

 

5,797,676

 

Common stock warrants

 

 

499,999

 

 

 

499,999

 

Total shares excluded from net loss per share

 

 

5,746,515

 

 

 

6,297,675

 

 

Comprehensive income or loss

ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive income or loss and its components in the financial statements.  For the three and nine months ended September 30, 2016 and 2015, the Company had no other comprehensive income (loss) items and therefore, comprehensive loss equaled net loss. Accordingly, a separate statement of comprehensive loss has not been presented.

Recently issued accounting standards

Under the Jumpstart Our Business Startups Act, or the JOBS Act, the Company meets the definition of an emerging growth company. The Company has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance related to revenue from contracts with customers.  Under this guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.  The updated standard will replace all existing revenue recognition guidance under GAAP when it becomes effective and this guidance can be applied either retrospectively to each prior reporting period presented (i.e., full retrospective adoption) or with the cumulative effect of initially applying the update recognized at the date of the initial application (i.e., modified retrospective adoption) along with additional disclosures.  In July 2015, the FASB voted to defer the effective date to January 1, 2018, with early adoption beginning January 1, 2017.  In March, April and May 2016, the FASB issued additional amendments to the new revenue guidance relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements, and other narrow scope improvements.  The Company is evaluating the impact of adopting this guidance on its consolidated financial statements and has not selected the method of adoption.

In April 2015, the FASB issued new guidance related to the customer’s accounting for fees paid in a cloud computing arrangement, which provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This guidance was effective for annual reporting periods beginning after December 15, 2015. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued new guidance which significantly changes the accounting for leases. The new guidance requires a lessee recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. For income statement purposes, the new guidance retained a dual model, requiring leases to be classified as either operating or financing. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern similar to existing capital lease guidance. For statement of cash flow purposes, the new guidance also retained the existing dual method, where cash payments for operating leases are reflected in cash flows from operating activities and principal and interest payments for finance leases are reflected in

12


cash flows from financing activities and cash flows from operating activities, respectively. The new guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The new guidance requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach. The use of the modified retrospective approach allows an entity to use a number of practical expedients in the application of this new guidance. The Company is evaluating the impact of adopting this guidance on its consolidated financial statements.

In March 2016, the FASB issued new guidance to simplify various aspects relating to accounting for stock-based compensation and related tax impacts, the classification of excess tax benefits on the statement of cash flows, statutory tax withholding requirements and other stock based compensation classification matters. The guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period.  All of the amendments in the new guidance must be adopted in the same period.  The Company plans to adopt this guidance during the first quarter ended March 31, 2017, and the Company is evaluating the impact of this guidance on its consolidated financial statements.

In August 2016, the FASB issued cash flow guidance which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice, including presentation of cash flows relating to contingent consideration payments, debt prepayment and debt extinguishment costs, among other matters.  This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  If adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period.  The adoption of this guidance should be applied using a retrospective transition method to each period presented, unless impracticable to do so.  The Company’s planned adoption of this guidance during the fourth quarter ended December 31, 2016 is not expected to impact previously reported cash flows.  In November 2016, the Company paid debt prepayment costs of $0.7 million associated with the termination of its credit facility which will be presented as a financing cash outflow in the statement of cash flows for the fourth quarter ended December 31, 2016.

In November 2016, the FASB issued guidance which requires that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years and should be applied using a retrospective transition method to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  The Company has not yet determined the timing of adoption.  

 

 

Note 3 – Business combination

On August 31, 2016, the Company acquired all the issued and outstanding capital stock of Runbook, a Netherlands-based provider of financial close automation software and integration solutions for SAP.  The purpose of the acquisition was to enhance the Company’s position as a leading provider of software solutions to automate the financial close process for SAP customers and supports the Company’s European expansion strategy.  The acquisition has been accounted for as a business combination under GAAP.  

The total purchase consideration was approximately $34.1 million, subject to a final working capital adjustment, which was paid in cash.  Upon the finalization of the working capital adjustment, the amount of the purchase price allocated to goodwill may change.  A portion of the purchase price of $3.1 million was paid into escrow for indemnification obligations relating to potential breach of representations and warranties of the sellers and any amounts remaining in escrow after satisfaction of any resolved claims, will be released from escrow on the one-year anniversary of the acquisition.  Acquisition related costs incurred by the Company of approximately $1.4 million were expensed as incurred.

13


The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (in thousands):

 

Total consideration to selling shareholders

 

$

34,052

 

Assets acquired and liabilities assumed

 

 

 

 

Cash and cash equivalents

 

 

2,564

 

Accounts receivable

 

 

2,593

 

Prepaid expenses and other current assets

 

 

718

 

Property and equipment

 

 

427

 

Intangible assets

 

 

9,790

 

Accounts payable

 

 

(285

)

Accrued expenses and other current liabilities

 

 

(376

)

Deferred revenues

 

 

(489

)

Net deferred income tax liabilities

 

 

(2,787

)

Net assets

 

 

12,155

 

Goodwill

 

$

21,897

 

 

The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to expected synergies from assembled workforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation.  The goodwill resulting from the acquisition is not tax deductible.

To determine the estimated fair value of intangible assets acquired, the Company engaged a third-party valuation specialist to assist management.  The fair value measurements of the intangible assets were based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in ASC 820.  The acquired intangible asset categories, fair value and amortization periods, are as follows (in thousands):

 

 

 

Amortization Period

 

Fair Value

 

Trade name

 

1 year

 

 

20

 

Developed technology

 

8 years

 

 

5,710

 

Non-compete agreements

 

2 years

 

 

180

 

Customer relationships

 

10 years

 

 

3,880

 

Total

 

 

 

 

9,790

 

 

The weighted average lives of intangible assets at the acquisition date was 8.7 years.

 

Pro forma information

The following table presents the Company’s pro forma total revenues, pro forma net loss and pro forma net loss per share, basic and diluted for the three and nine months ended September 30, 2016 and 2015 as if the acquisition occurred on January 1, 2015 (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Pro forma total revenues

 

$

33,808

 

 

$

22,656

 

 

$

92,856

 

 

$

62,117

 

Pro forma net loss

 

 

(5,535

)

 

 

(7,337

)

 

 

(23,391

)

 

 

(19,314

)

Pro forma net loss per share, basic and diluted

 

 

(0.14

)

 

 

(0.18

)

 

 

(0.57

)

 

 

(0.48

)

 

The pro forma results reflect certain adjustments for the depreciation and amortization of the fair values of the intangible assets acquired, adjustments to revenue resulting from the fair value adjustment to deferred revenue, acquisition related costs, and related tax adjustments.  Such pro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the date indicated, nor is it indicative of the future operating results of the Company.

 

 

14


Note 4 – Accrued expenses and other current liabilities

As of September 30, 2016 and December 31, 2015, accrued expenses and other current liabilities comprise the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued salary and employee benefits

 

$

9,016

 

 

$

9,716

 

Accrued income and other taxes payable

 

 

2,173

 

 

 

1,047

 

Short-term portion of capital lease

 

 

558

 

 

 

558

 

Accrued commissions to third party partners

 

 

1,074

 

 

 

2,305

 

Deferred IPO costs

 

 

583

 

 

 

419

 

Accrued professional services costs

 

 

1,813

 

 

 

16

 

Short-term portion of deferred rent

 

 

340

 

 

 

 

Other accrued expenses

 

 

1,928

 

 

 

951

 

 

 

$

17,485

 

 

$

15,012

 

 

 

Note 5 – Other long-term liabilities

As of September 30, 2016 and December 31, 2015, accrued expenses and other current liabilities comprise the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Deferred rent

 

$

2,483

 

 

$

3,073

 

Capital lease, net of current portion

 

 

434

 

 

 

558

 

Deferred revenue, net of current portion

 

 

1,000

 

 

 

 

 

 

$

3,917

 

 

$

3,631

 

 

 

Note 6 – Term loan, net

In March 2016, the Company amended its credit facility to add an additional $5.0 million term loan (the “2016 Term Loan”) and provide for a $5.0 million revolving line of credit. In August 2016, the Company entered into a third amendment to its credit facility to add an additional $30.0 million term loan (the “2016 Acquisition Term Loan”) to fund the acquisition of Runbook.  The additional $5.0 million borrowing under the 2016 Term Loan, $30.0 million under the 2016 Acquisition Term Loan and the revolving line of credit each mature in September 2018. The 2016 Term Loan and 2016 Acquisition Term Loan each bears interest at (i) the greater of LIBOR or 1.5% plus (ii) 8% and can be paid in varying amounts in cash or in kind. The revolving line of credit bears interest at (i) the greater of LIBOR or 0.5% plus (ii) 6%. The Company is also required to pay a commitment fee equal to 0.5% per annum of the unused portion of the revolving line of credit.   No amounts were outstanding under the revolving line of credit at September 30, 2016.

The net carrying value of the Company’s borrowings under its term loans as of September 30, 2016 and December 31, 2015 consists of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Principal amount (including interest paid in kind)

 

$

66,418

 

 

$

29,648

 

Unamortized debt issuance costs and debt discount

 

 

(1,035

)

 

 

(627

)

Unamortized common stock warrant liability

   discount

 

 

(547

)

 

 

(754

)

Net carrying value

 

$

64,836

 

 

$

28,267

 

 

The credit facility is collateralized against all of the Company’s assets. In connection with certain events, including a change in control, or if the Company elects to repay the amounts outstanding under the term loans, the Company is required to pay a prepayment penalty.

15


In November 2016, the Company repaid the entire amounts owed under the credit facility, including prepayment penalty, and terminated the credit facility. See Note 10, “Subsequent events.”

 

 

Note 7 – Commitments and contingencies

Operating Leases - The Company has various non-cancelable operating leases for its corporate and international offices.  These leases expire at various times through 2023.  Certain lease agreements contain renewal options, rent abatement, and escalation clauses and entitle the Company to receive a tenant allowance from the landlord.  The Company records tenant allowances as a deferred rent credit, which the Company amortizes on a straight-line basis, as a reduction of rent expense, over the term of the underlying lease.

Contingent Consideration - On September 3, 2013, BlackLine Systems, Inc. was acquired by BlackLine, Inc. (the “Acquisition”).  In conjunction with the 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 Acquisition.  As a condition of the Acquisition, the Company is required to pay additional cash consideration to certain equity holders if the Company realizes a tax benefit from the use of net operating losses generated from the stock option exercises concurrent with the Acquisition.  The maximum contingent cash consideration to be distributed is $8.0 million.  The fair value of the contingent consideration was $5.1 and $4.9 million as of September 30, 2016 and December 31, 2015, respectively.

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 our 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 we 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 have it been sued in connection with these indemnification arrangements. As of September 30, 2016 and December 31, 2015, 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 is not probable or reasonably estimable.

 

 

Note 8 – Stock options

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2016 is as follows:

 

 

 

Shares

 

 

Weighted
Average
Exercise
Price

 

Outstanding, December 31, 2015

 

 

5,904,376

 

 

$

8.62

 

Granted

 

 

332,400

 

 

 

15.29

 

Exercised

 

 

(451,315

)

 

 

5.29

 

Forfeited

 

 

(538,945

)

 

 

7.13

 

Outstanding, September 30, 2016

 

 

5,246,516

 

 

$

9.49

 

Exercisable at September 30, 2016

 

 

1,642,934

 

 

$

8.21

 

Vested and expected to vest at September 30, 2016

 

 

4,727,612

 

 

$

9.52

 

 

16


Stock-based compensation expense for stock option awards for the three and nine months ended September 30, 2016 and 2015 were as follows (in thousands):

 

 

 

Three Months Ended