bl-10q_20170331.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 March 31, 2017

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

(Address of principal executive offices, including zip code)

 

(818) 223-9008

(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, 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

(Do not check if a smaller reporting company)

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.  

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 May 1, 2017 was 51,369,802.

 

 


BlackLine Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2017

TABLE OF CONTENTS

Part I. Financial Information

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

4

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016

4

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016

5

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016

6

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Three Months Ended March 31, 2017

7

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

10

 

 

 

Item 2.

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

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

26

 

 

Part II. Other Information

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

49

 

 

 

Item 6.

Exhibits

50

 

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, 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 extension of distribution channels and strategic relationships, product innovation, international expansion, customer growth and expansion, 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.

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, references to “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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,448

 

 

$

22,118

 

Marketable securities

 

 

77,868

 

 

 

83,130

 

Accounts receivable, net

 

 

43,889

 

 

 

42,294

 

Deferred sales commissions

 

 

9,533

 

 

 

9,667

 

Prepaid expenses and other current assets

 

 

7,777

 

 

 

6,614

 

Total current assets

 

 

162,515

 

 

 

163,823

 

Capitalized software development costs, net

 

 

5,049

 

 

 

4,591

 

Property and equipment, net

 

 

11,274

 

 

 

11,318

 

Intangible assets, net

 

 

50,788

 

 

 

54,118

 

Goodwill

 

 

185,138

 

 

 

185,138

 

Other assets

 

 

1,471

 

 

 

1,449

 

Total assets

 

$

416,235

 

 

$

420,437

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,269

 

 

$

7,165

 

Accrued expenses and other current liabilities

 

 

15,719

 

 

 

18,931

 

Deferred revenue

 

 

88,347

 

 

 

80,360

 

Short-term portion of contingent consideration

 

 

2,008

 

 

 

2,008

 

Total current liabilities

 

 

110,343

 

 

 

108,464

 

Common stock warrant liability

 

 

12,380

 

 

 

11,380

 

Contingent consideration

 

 

3,323

 

 

 

3,230

 

Deferred tax liabilities, net

 

 

1,100

 

 

 

1,262

 

Deferred revenue, noncurrent

 

 

2,400

 

 

 

2,373

 

Other long-term liabilities

 

 

2,343

 

 

 

2,318

 

Total liabilities

 

 

131,889

 

 

 

129,027

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

513

 

 

 

513

 

Additional paid-in capital

 

 

380,288

 

 

 

378,272

 

Accumulated other comprehensive loss

 

 

(39

)

 

 

(41

)

Accumulated deficit

 

 

(96,416

)

 

 

(87,334

)

Total stockholders' equity

 

 

284,346

 

 

 

291,410

 

Total liabilities and stockholders' equity

 

$

416,235

 

 

$

420,437

 

 

 

 

 

 

 

 

 

 

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

 

 

 

4


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Revenues

 

 

 

 

 

 

 

 

Subscription and support

 

$

37,051

 

 

$

25,328

 

Professional services

 

 

1,583

 

 

 

1,233

 

Total revenues

 

 

38,634

 

 

 

26,561

 

Cost of revenues

 

 

 

 

 

 

 

 

Subscription and support

 

 

7,777

 

 

 

5,961

 

Professional services

 

 

1,455

 

 

 

979

 

Total cost of revenues

 

 

9,232

 

 

 

6,940

 

Gross profit

 

 

29,402

 

 

 

19,621

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

23,496

 

 

 

18,169

 

Research and development

 

 

5,948

 

 

 

5,272

 

General and administrative

 

 

8,253

 

 

 

5,979

 

Total operating expenses

 

 

37,697

 

 

 

29,420

 

Loss from operations

 

 

(8,295

)

 

 

(9,799

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

224

 

 

 

4

 

Interest expense

 

 

(4

)

 

 

(865

)

Change in fair value of the common

   stock warrant liability

 

 

(1,000

)

 

 

 

Other expense, net

 

 

(780

)

 

 

(861

)

Loss before income taxes

 

 

(9,075

)

 

 

(10,660

)

Benefit from income taxes

 

 

(65

)

 

 

(1,325

)

Net loss

 

$

(9,010

)

 

$

(9,335

)

Net loss per share, basic and diluted

 

$

(0.18

)

 

$

(0.23

)

Weighted average common shares

   outstanding, basic and diluted

 

 

51,282

 

 

 

40,689

 

 

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

 

 


5


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Net loss

 

$

(9,010

)

 

$

(9,335

)

Other comprehensive income

 

 

 

 

 

 

 

 

Net change in unrealized gain on marketable securities,

   net of tax of $0

 

 

2

 

 

 

 

Other comprehensive income

 

 

2

 

 

 

 

Comprehensive loss

 

$

(9,008

)

 

$

(9,335

)

 

 

 

 

 

 

 

 

 

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

 

6


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except shares)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

Shares

Outstanding

 

 

Amount

 

 

Paid-in

Capital

 

 

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total

 

Balance at December 31, 2016

 

 

51,277,964

 

 

$

513

 

 

$

378,272

 

 

$

(41

)

 

$

(87,334

)

 

$

291,410

 

Adjustment for change in accounting policy for

   stock option forfeitures

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

(72

)

 

 

 

Balance at January 1, 2017

 

 

51,277,964

 

 

 

513

 

 

 

378,344

 

 

 

(41

)

 

 

(87,406

)

 

 

291,410

 

Stock option exercises

 

 

7,150

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

65

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,879

 

 

 

 

 

 

 

 

 

1,879

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,010

)

 

 

(9,010

)

Balance at March 31, 2017

 

 

51,285,114

 

 

$

513

 

 

$

380,288

 

 

$

(39

)

 

$

(96,416

)

 

$

284,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

7


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

  

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(9,010

)

 

$

(9,335

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,791

 

 

 

4,111

 

Accretion of debt discount and accrual of paid in kind interest

 

 

 

 

 

481

 

Change in fair value of common stock warrant liability

 

 

1,000

 

 

 

 

Change in fair value of contingent consideration

 

 

93

 

 

 

62

 

Stock-based compensation

 

 

1,849

 

 

 

1,625

 

(Accretion)/amortization of purchase discounts/premiums on marketable

   securities, net

 

 

63

 

 

 

 

Deferred income taxes

 

 

(162

)

 

 

(1,402

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,595

)

 

 

(1,499

)

Deferred sales commissions

 

 

134

 

 

 

242

 

Prepaid expenses and other current assets

 

 

(1,163

)

 

 

(1,017

)

Other assets

 

 

(22

)

 

 

(757

)

Accounts payable

 

 

(3,253

)

 

 

1,421

 

Accrued expenses and other current liabilities

 

 

(2,469

)

 

 

(2,031

)

Deferred revenue

 

 

8,014

 

 

 

3,800

 

Other long-term liabilities

 

 

25

 

 

 

(352

)

Net cash used in operating activities

 

 

(1,705

)

 

 

(4,651

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from maturities of marketable securities

 

 

5,200

 

 

 

 

Capitalized software development costs

 

 

(1,083

)

 

 

(807

)

Purchases of property and equipment

 

 

(488

)

 

 

(409

)

Net cash provided by (used in) investing activities

 

 

3,629

 

 

 

(1,216

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from term loan, net of issuance costs

 

 

 

 

 

4,840

 

Principal payments on capital lease obligations

 

 

(549

)

 

 

(124

)

Payments of initial public offering costs

 

 

(110

)

 

 

(725

)

Proceeds from exercises of stock options

 

 

65

 

 

 

135

 

Net cash provided by (used in) financing activities

 

 

(594

)

 

 

4,126

 

Net increase (decrease) in cash and cash equivalents

 

 

1,330

 

 

 

(1,741

)

Cash and cash equivalents, beginning of period

 

 

22,118

 

 

 

15,205

 

Cash and cash equivalents, end of period

 

$

23,448

 

 

$

13,464

 

 

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

 

 

 

8


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOW DISCLOSURE

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Non-cash financing and investing activities

 

 

 

 

 

 

 

 

Capitalized software development costs included in accounts

   payable and accrued expenses and other current liabilities

 

$

45

 

 

$

35

 

Purchases of property and equipment included in accounts

   payable and accrued expenses and other current liabilities

 

$

445

 

 

$

236

 

Stock-based compensation capitalized for software development

 

$

30

 

 

$

22

 

Deferred offering costs included in accounts payable

   and accrued expenses and other current liabilities

 

$

 

 

$

1,617

 

Term loan issuance costs

 

$

 

 

$

80

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

9


BlackLine, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

Note 1 – Company overview

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 headquartered in Los Angeles, California and has offices in Chicago, Atlanta, New York, Vancouver, London, Paris, Frankfurt, Sydney, Melbourne, Kuala Lumpur, Netherlands, Poland, Singapore, and South Africa.

 

 

Note 2 – Basis of presentation, significant accounting policies and recently-issued accounting pronouncements

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 included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the SEC on March 10, 2017.  The 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 condensed consolidated balance sheet as of December 31, 2016 was derived from audited financial statements, but does not include all disclosures required by GAAP.  The operating results for the three months ended March 31, 2017 are not necessarily indicative of the results expected for the full year ending December 31, 2017.

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.

Significant Accounting Policies

There have been no material changes in the accounting policies from those disclosed in the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K.  During the three months ended March 31, 2017, the Company adopted the new stock compensation guidance and changed its policy to account for forfeitures when they occur and record income tax benefits related to stock awards in the statement of operations, subject to the need for a deferred tax asset valuation allowance – See Recently Issued Accounting Pronouncements.

Recently-issued accounting standards

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 permits the use of either the retrospective or cumulative effect transition method. 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, May, and December 2016, the FASB issued amendments to the new guidance relating to reporting revenue on a gross versus net basis, identifying performance obligations and licensing arrangements and other narrow scope improvements.  The Company will adopt the new revenue guidance in the first quarter of 2018 though has not yet determined whether to adopt using a full retrospective or modified retrospective approach.  The Company is currently assessing the impact of the new revenue guidance on its arrangements.  The Company currently believes that the new guidance will impact the amount and timing of incremental costs of obtaining a contract, such as sales commissions.  The Company generally does not pay sales commissions upon contract renewal and therefore, under the new revenue guidance, the sales commissions will be recognized over an estimated customer life rather than over the non-cancelable term under current guidance.  The new

10


guidance is also expected to impact the Company’s arrangements subject to current software revenue recognition guidance and also require incremental disclosures of the Company’s revenue arrangements.  The Company has not yet quantified the impact of these changes.  Adoption of this standard will also require changes to the Company’s business processes, systems and controls to support the new revenue recognition guidance.  The Company is in the process of identifying such changes.

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 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. Although the Company is evaluating the impact of adopting this guidance on its consolidated financial statements, the Company expects that most of its operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the new guidance.

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 was effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods.  The Company adopted this guidance during the first quarter ended March 31, 2017.  Upon adoption, the Company changed an accounting policy to account for forfeitures when they occur rather than estimate a forfeiture rate.  The impact of this change in policy increased the Company’s accumulated deficit and additional paid-in capital by $0.1 million as of January 1, 2017.  The new guidance also requires the Company to record, on a prospective basis, the income tax effects of stock-based compensation awards in the income statement as discrete items, subject to deferred tax asset valuation allowance considerations, in the reporting period in which they occur, which will increase volatility in the Company’s income tax provision in the future to the extent that the Company is able to realize the tax benefits. In addition, upon adoption previously unrecognized tax benefits were recorded as an adjustment to accumulated deficit, subject to assessment for the need for a deferred tax asset valuation allowance, as of January 1, 2017. The Company had $36.7 million of net operating losses related to tax benefits for stock-based compensation awards as of December 31, 2016 which were not recorded as deferred tax assets. As the Company has a full valuation allowance against its deferred tax assets, the adoption of this guidance did not have a material impact on the Company’s financial statements.

In June 2016, the FASB issued guidance which requires that financial assets measured at amortized costs be presented at the net amount expected to be collected. This guidance amends the accounting for credit losses for available-for-sale securities and purchased financial assets with credit deterioration. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period after December 15, 2018. The Company has not determined the impact of this guidance on its consolidated financial statements.

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’s restricted cash as of March 31, 2017 and December 31, 2016 was $0.4 million and therefore, the adoption of this guidance is not expected to have a material impact on the Company’s consolidated statements of cash flows.

In February 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by no longer requiring an entity to determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business

11


combination.  Under this new guidance, an entity would perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity would consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.  Under the new guidance, an entity continues to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.  This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those years.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2017, the FASB issued guidance which shortens the amortization period for certain purchased callable debt securities held at a premium.  Under this new guidance, an entity would shorten the amortization period of the premium to the earliest call date.  This guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods.  Early adoption is permitted, including adoption in an interim period.  The Company has not determined the impact of this guidance on its consolidated financial statements.

 

Note 3 – Investments in Marketable Securities

Investments in marketable securities presented within current assets on the consolidated balance sheet consisted of the following:

 

 

 

March 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

$

29,718

 

 

$

 

 

$

(9

)

 

$

29,709

 

Corporate bonds

 

 

25,504

 

 

 

2

 

 

 

(18

)

 

 

25,488

 

Commercial paper

 

 

10,387

 

 

 

 

 

 

 

 

 

10,387

 

Asset-backed securities

 

 

12,298

 

 

 

 

 

 

(14

)

 

 

12,284

 

 

 

$

77,907

 

 

$

2

 

 

$

(41

)

 

$

77,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

$

29,742

 

 

$

 

 

$

(17

)

 

$

29,725

 

Corporate bonds

 

 

25,522

 

 

 

 

 

 

(21

)

 

 

25,501

 

Commercial paper

 

 

15,554

 

 

 

 

 

 

 

 

 

15,554

 

Asset-backed securities

 

 

12,353

 

 

 

 

 

 

(3

)

 

 

12,350

 

 

 

$

83,171

 

 

$

 

 

$

(41

)

 

$

83,130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains and losses on marketable securities and net gains and losses reclassified from accumulated other comprehensive loss to earnings were not material for the three months ended March 31, 2017.    

 

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The Company’s marketable securities have a contractual maturity of less than four years.  The amortized cost and fair values of marketable securities, by remaining contractual maturity, were as follows:

 

 

 

March 31, 2017

 

 

 

Amortized

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Due in 1 year or less

 

$

61,372

 

 

$

61,356

 

Due after 1 year through 4 years

 

 

16,535

 

 

 

16,512

 

 

 

$

77,907

 

 

$

77,868

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Due in 1 year or less

 

$

49,371

 

 

$

49,363

 

Due after 1 year through 4 years

 

 

33,800

 

 

 

33,767

 

 

 

$

83,171

 

 

$

83,130

 

 

 

 

 

 

 

 

 

 

 

Note 4 – Accrued expenses and other current liabilities

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

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued salaries and employee benefits

 

$

7,402

 

 

$

11,589

 

Accrued income and other taxes payable

 

 

1,275

 

 

 

1,553

 

Short-term portion of capital lease

 

 

442

 

 

 

992

 

Accrued commissions to third-party partners

 

 

2,123

 

 

 

2,081

 

Accrued initial public offering costs

 

 

 

 

 

110

 

Accrued professional services costs

 

 

913

 

 

 

454

 

Short-term tenant improvement allowance

 

 

341

 

 

 

341

 

Other accrued expenses

 

 

3,223

 

 

 

1,811

 

 

 

$

15,719

 

 

$

18,931

 

 

 

 

 

 

 

 

 

 

 

Note 5 – Fair value measurements

As of March 31, 2017 and December 31, 2016, the carrying values of cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair values due to the short-term nature of such instruments.  

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 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):

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March 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,215

 

 

$

 

 

$

 

 

$

12,215

 

Commercial paper

 

 

 

 

 

5,196

 

 

 

 

 

 

5,196

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

 

29,709

 

 

 

 

 

 

 

 

 

29,709

 

Corporate bonds

 

 

 

 

 

25,488

 

 

 

 

 

 

25,488

 

Commercial paper

 

 

 

 

 

10,387

 

 

 

 

 

 

10,387

 

Asset-backed securities

 

 

 

 

 

12,284

 

 

 

 

 

 

12,284

 

Total assets

 

$

41,924

 

 

$

53,355

 

 

$

 

 

$

95,279

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock warrant liability

 

$

 

 

$

 

 

$

12,380

 

 

$

12,380

 

Contingent consideration

 

 

 

 

 

 

 

 

5,331

 

 

 

5,331

 

Total liabilities

 

$

 

 

$

 

 

$

17,711

 

 

$

17,711

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,936

 

 

$

 

 

$

 

 

$

18,936

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

 

29,725

 

 

 

 

 

 

 

 

 

29,725

 

Corporate bonds

 

 

 

 

 

25,501

 

 

 

 

 

 

25,501

 

Commercial paper

 

 

 

 

 

15,554

 

 

 

 

 

 

15,554

 

Asset-backed securities

 

 

 

 

 

12,349

 

 

 

 

 

 

12,349

 

Total assets

 

$

48,661

 

 

$

53,404

 

 

$

 

 

$

102,065

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock warrant liability

 

$

 

 

$

 

 

$

11,380

 

 

$

11,380

 

Contingent consideration

 

 

 

 

 

 

 

 

5,238

 

 

 

5,238

 

Total liabilities

 

$

 

 

$

 

 

$

16,618

 

 

$

16,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no changes to the valuation techniques used to measure asset and liability fair values on a recurring basis during the three months ended March 31, 2017.

The following table summarizes the changes in the common stock warrant liability and contingent consideration liability (in thousands) for the three months ended March 31, 2017 and 2016:

 

 

 

Contingent

 

 

Common Stock

 

 

 

Consideration

 

 

Warrant Liability

 

Fair value as of December 31, 2016

 

$

5,238

 

 

$

11,380

 

Change in fair value

 

 

93

 

 

 

1,000

 

Fair value as of March 31, 2017

 

$

5,331

 

 

$

12,380

 

 

 

 

 

 

 

 

 

 

 

 

Contingent

 

 

Common Stock

 

 

 

Consideration

 

 

Warrant Liability

 

Fair value as of December 31, 2015

 

$

4,867

 

 

$

5,500

 

Change in fair value

 

 

62

 

 

 

 

Fair value as of March 31, 2016

 

$

4,929

 

 

$

5,500

 

 

 

Note 6 – 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.

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Contingent Consideration - On September 3, 2013, BlackLine Systems, Inc. was acquired by BlackLine, Inc. (the “2013 Acquisition”).  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 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 2013 Acquisition.  The maximum contingent cash consideration to be distributed is $8.0 million.  The fair value of the contingent consideration was $5.3 million and $5.2 million as of March 31, 2017 and December 31, 2016, 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, results of operations, 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 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. As of March 31, 2017 and December 31, 2016, 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 7 – Stock options

Stock-based compensation expense for stock option awards was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Cost of revenues

 

$

250