bl-10q_20180331.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, 2018

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 at May 4, 2018 was 53,442,300.

 


BlackLine Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2018

TABLE OF CONTENTS

Part I. Financial Information

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

4

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at March 31, 2018 and December 31, 2017

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the Quarters Ended March 31, 2018 and 2017

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Quarters Ended March 31, 2018 and 2017

6

 

 

 

 

Unaudited Condensed Consolidated Statement of Stockholders’ Equity for the Quarter Ended March 31, 2018

7

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2018 and 2017

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

 

 

 

Item 2.

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

21

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

33

 

 

Part II. Other Information

 

 

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

 

 

 

Item 6.

Exhibits

56

 

 

2


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 extension of distribution channels and strategic relationships, product innovation, international expansion, customer growth and expansion, customer service initiatives, 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; 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 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.

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,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

*As Adjusted

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,864

 

 

$

31,104

 

Marketable securities

 

 

83,168

 

 

 

81,476

 

Accounts receivable, net

 

 

57,019

 

 

 

61,918

 

Prepaid expenses and other current assets

 

 

15,625

 

 

 

13,956

 

Total current assets

 

 

186,676

 

 

 

188,454

 

Capitalized software development costs, net

 

 

7,557

 

 

 

6,824

 

Property and equipment, net

 

 

13,280

 

 

 

12,769

 

Intangible assets, net

 

 

37,485

 

 

 

40,808

 

Goodwill

 

 

185,138

 

 

 

185,138

 

Other assets

 

 

28,379

 

 

 

26,820

 

Total assets

 

$

458,515

 

 

$

460,813

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,566

 

 

$

7,254

 

Accrued expenses and other current liabilities

 

 

12,240

 

 

 

20,874

 

Deferred revenue

 

 

110,733

 

 

 

104,184

 

Short-term portion of contingent consideration

 

 

2,008

 

 

 

2,008

 

Total current liabilities

 

 

131,547

 

 

 

134,320

 

Contingent consideration

 

 

3,970

 

 

 

3,858

 

Deferred tax liabilities, net

 

 

1,501

 

 

 

1,743

 

Deferred revenue, noncurrent

 

 

477

 

 

 

468

 

Other long-term liabilities

 

 

3,459

 

 

 

3,119

 

Total liabilities

 

 

140,954

 

 

 

143,508

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

535

 

 

 

530

 

Additional paid-in capital

 

 

427,104

 

 

 

419,628

 

Accumulated other comprehensive loss

 

 

(133

)

 

 

(63

)

Accumulated deficit

 

 

(109,945

)

 

 

(102,790

)

Total stockholders' equity

 

 

317,561

 

 

 

317,305

 

Total liabilities and stockholders' equity

 

$

458,515

 

 

$

460,813

 

*    See Note 3 for a summary of adjustments.

 

 

 

 

 

 

 

 

 

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)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

*As Adjusted

 

Revenues

 

 

 

 

 

 

 

 

Subscription and support

 

$

48,625

 

 

$

36,558

 

Professional services

 

 

2,659

 

 

 

1,623

 

Total revenues

 

 

51,284

 

 

 

38,181

 

Cost of revenues

 

 

 

 

 

 

 

 

Subscription and support

 

 

9,381

 

 

 

7,755

 

Professional services

 

 

2,225

 

 

 

1,455

 

Total cost of revenues

 

 

11,606

 

 

 

9,210

 

Gross profit

 

 

39,678

 

 

 

28,971

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

29,227

 

 

 

21,820

 

Research and development

 

 

6,929

 

 

 

5,948

 

General and administrative

 

 

11,082

 

 

 

8,253

 

Total operating expenses

 

 

47,238

 

 

 

36,021

 

Loss from operations

 

 

(7,560

)

 

 

(7,050

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

389

 

 

 

224

 

Interest expense

 

 

(4

)

 

 

(4

)

Change in fair value of the common

   stock warrant liability

 

 

 

 

 

(1,000

)

Other income (expense), net

 

 

385

 

 

 

(780

)

Loss before income taxes

 

 

(7,175

)

 

 

(7,830

)

Benefit from income taxes

 

 

(20

)

 

 

(145

)

Net loss

 

$

(7,155

)

 

$

(7,685

)

Basic net loss per share

 

$

(0.13

)

 

$

(0.15

)

Shares used to calculate basic net loss per share

 

 

53,151

 

 

 

51,282

 

Diluted net loss per share

 

$

(0.13

)

 

$

(0.15

)

Shares used to calculate diluted net loss per share

 

 

53,151

 

 

 

51,282

 

*    See Note 3 for a summary of adjustments.

 

 

 

 

 

 

 

 

 

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)

 

 

Quarter Ended March 31,

 

 

2018

 

 

2017

 

 

 

 

 

 

*As Adjusted

 

Net loss

$

(7,155

)

 

$

(7,685

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

Net change in unrealized gain on marketable securities,

net of tax of $0 for the quarters ended March 31, 2018 and 2017

 

(70

)

 

 

2

 

Other comprehensive income (loss)

 

(70

)

 

 

2

 

Comprehensive loss

$

(7,225

)

 

$

(7,683

)

*    See Note 3 for a summary of adjustments.

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*As Adjusted

 

 

*As Adjusted

 

Balance at December 31, 2017

 

 

52,983

 

 

$

530

 

 

$

419,628

 

 

$

(63

)

 

$

(102,790

)

 

$

317,305

 

Stock option exercises

 

 

459

 

 

 

5

 

 

 

3,448

 

 

 

 

 

 

 

 

 

3,453

 

Repurchases of common stock

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

(16

)

Stock-based compensation

 

 

 

 

 

 

 

 

4,044

 

 

 

 

 

 

 

 

 

4,044

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

 

 

 

(70

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,155

)

 

 

(7,155

)

Balance at March 31, 2018

 

 

53,442

 

 

$

535

 

 

$

427,104

 

 

$

(133

)

 

$

(109,945

)

 

$

317,561

 

*    See Note 3 for a summary of adjustments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

*As Adjusted

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(7,155

)

 

$

(7,685

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,394

 

 

 

4,791

 

Change in fair value of common stock warrant liability

 

 

 

 

 

1,000

 

Change in fair value of contingent consideration

 

 

112

 

 

 

93

 

Stock-based compensation

 

 

3,974

 

 

 

1,849

 

(Accretion) amortization of purchase discounts/premiums on marketable securities, net

 

 

(67

)

 

 

63

 

Net foreign currency (gains) losses

 

 

(59

)

 

 

 

Deferred income taxes

 

 

(242

)

 

 

(235

)

Provision for doubtful accounts receivable

 

 

(51

)

 

 

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,058

 

 

 

(1,595

)

Prepaid expenses and other current assets

 

 

(1,891

)

 

 

(1,277

)

Other assets

 

 

(1,285

)

 

 

(1,434

)

Accounts payable

 

 

(929

)

 

 

(3,253

)

Accrued expenses and other current liabilities

 

 

(7,935

)

 

 

(2,469

)

Deferred revenue

 

 

6,558

 

 

 

8,422

 

Other long-term liabilities

 

 

340

 

 

 

25

 

Net cash provided by (used in) operating activities

 

 

1,822

 

 

 

(1,705

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(30,175

)

 

 

 

Proceeds from maturities of marketable securities

 

 

28,480

 

 

 

5,200

 

Capitalized software development costs

 

 

(1,653

)

 

 

(1,083

)

Purchases of property and equipment

 

 

(1,634

)

 

 

(488

)

Net cash provided by (used in) investing activities

 

 

(4,982

)

 

 

3,629

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Principal payments on capital lease obligations

 

 

(443

)

 

 

(549

)

Proceeds from exercises of stock options

 

 

3,453

 

 

 

65

 

Repurchases of common stock

 

 

(16

)

 

 

 

Payments of initial public offering costs

 

 

 

 

 

(110

)

Net cash provided by (used in) financing activities

 

 

2,994

 

 

 

(594

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

(166

)

 

 

1,330

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

31,504

 

 

 

22,518

 

Cash, cash equivalents, and restricted cash, end of period

 

$

31,338

 

 

$

23,848

 

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,864

 

 

$

23,448

 

Restricted cash included within prepaid expenses and other current assets

 

 

200

 

 

 

 

Restricted cash included within other assets

 

 

274

 

 

 

400

 

Total cash, cash equivalents, and restricted cash

 

$

31,338

 

 

$

23,848

 

*    See Note 3 for a summary of adjustments.

 

 

 

 

 

 

 

 

 

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 FLOWS DISCLOSURE

(in thousands)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

 

2017

 

Non-cash financing and investing activities

 

 

 

 

 

 

 

 

Stock-based compensation capitalized for software development

 

$

70

 

 

$

30

 

Capitalized software development costs included in accounts

   payable and accrued expenses and other current liabilities at end of period

 

$

199

 

 

$

45

 

Purchases of property and equipment included in accounts

   payable and accrued expenses and other current liabilities at end of period

 

$

383

 

 

$

445

 

 

 

 

 

 

 

 

 

 

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

 

 

9


BLACKLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLDIDATED 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, Romania, 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, 2017 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2018.  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 at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP.  The operating results for the quarter ended March 31, 2018 are not necessarily indicative of the results expected for the full year ending December 31, 2018.

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.

Reclassifications

Certain prior-period amounts have been reclassified to conform to the current-period presentation. These reclassifications had no impact on the previously-reported consolidated results of operations or stockholders' equity.

Significant accounting policies

The Company’s significant accounting policies are detailed in "Note 2: Summary of Significant Accounting Policies" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. On January 1, 2018, the Company adopted Accounting Standards Codification No. 606, Revenue from Contracts with Customers, on a full retrospective basis and has revised the Company’s accounting policies as it relates to revenue recognition and contract costs as a result of the adoption.

10


Revenue recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of subscription and support and professional services, which are generally capable of being distinct and accounted for as separate performance obligations. The Company’s agreements do not contain any refund provisions other than in the event of the Company’s non-performance or breach.

The Company determines revenue recognition through the following steps:

 

Identification of the contract, or contracts, with a customer

 

Identification of the performance obligations in the contract

 

Determination of the transaction price

 

Allocation of the transaction price to the performance obligations in the contract

 

Recognition of revenue when, or as, the Company satisfies a performance obligation

Subscription and support revenue – Customers pay subscription and support fees for access to the Company’s SaaS platform generally for a one-year period. In more limited cases, customers may pay for up to three years in advance. Fees are based on a number of factors, including the solutions subscribed for by the customer and the number of users having access to the solutions. Subscription services, which allow customers to use hosted software over the contract period without taking possession of the software, are considered distinct performance obligations and are recognized ratably as the Company transfers control evenly over the contract period.

Subscription and support revenue also includes software and related maintenance and support fees on legacy BlackLine solutions and Runbook Company B.V. (“Runbook”) software. Software licenses for legacy BlackLine solutions and Runbook software provide the customer with a right to use the software as it exists when made available to the customer. Customers may have purchased perpetual licenses or term based licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.

Software licenses are bundled with software maintenance and support, and the transaction price of the contract is allocated between the software licenses and the software maintenance and support. Maintenance and support convey rights to new software and upgrades released over the contract period and provide support, tools, and training to help customers deploy and use products more efficiently. Software licenses are considered distinct performance obligations and revenue is recognized at a point in time when control of the license has transferred and the license period commences. Maintenance and support are distinct performance obligations that are satisfied over time, and revenue is recognized ratably over the contract period as customers simultaneously consume and receive benefits.

Professional services revenue – Professional services consist of implementation and consulting services to assist the Company’s customers as they deploy its solutions. These services are considered distinct performance obligations. Professional services do not result in significant customization of the subscription service. The Company applies the practical expedient to recognize professional services revenue when it has the right to invoice based on time and materials incurred.

Significant judgments – The Company’s contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is also required to determine the stand alone selling price (“SSP”) for each distinct performance obligation. The Company typically has more than one standalone selling price for its SaaS solutions and professional services. Additionally, management has determined that there are no third-party offerings reasonably comparable to the Company’s solutions. Therefore, the Company determines the standalone selling prices of subscriptions to the SaaS solutions and professional services based on numerous factors including the Company’s overall pricing objectives, geography, customer size and number of users, and discounting practices. The Company uses historical maintenance renewal fees to estimate SSP for maintenance and support fees bundled with software licenses. The Company uses the residual method to estimate SSP of software licenses, because license pricing is highly variable and not sold separately from maintenance and support.

Contract balances – Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilled receivable when revenue is recognized prior to invoicing, and deferred revenue when revenue is recognized subsequent to invoicing. The Company generally invoices customers annually at the beginning of

11


each annual contract period. The Company records a receivable related to revenue recognized for multi-year agreements as it has an unconditional right to invoice and receive payment in the future related to those services.

Deferred revenue is comprised mainly of billings related to the Company’s SaaS solutions in advance of revenue being recognized. Deferred revenue also includes payments for: professional services to be performed in the future; legacy BlackLine maintenance and support; Runbook maintenance, support, license, and implementation; and other offerings for which the Company has been paid in advance and earns the revenue when the Company transfers control of the product or service.

Changes in deferred revenue for the quarters ended March 31, 2018 and 2017 were primarily due to additional billings in the quarters, partially offset by revenue recognized of $43.7 million and $32.3 million, respectively, that was previously included in the deferred revenue balance at December 31, 2017 and 2016, respectively.

The transaction price is generally determined by the stated fixed fees in the contract, excluding any related sales taxes. Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenue was $233.3 million at March 31, 2018, of which the Company expects to recognize approximately 63% over the next 12 months and the remainder thereafter.

Fees are generally due and payable upon receipt of invoice or within 30 days. None of the Company’s contracts includes a significant financing component.

Assets recognized from the costs to obtain a contract with a customer – The Company recognizes an asset for the incremental and recoverable costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be one year or longer. The Company has determined that certain sales incentive programs to the Company’s employees ("deferred customer contract acquisition costs") and its partners ("partner referral fees") meet the requirements to be capitalized. Deferred customer acquisition costs related to new revenue contracts and upsells are deferred and then amortized straight line over the expected period of benefit that the Company has determined to be five years, based upon both the product turnover rate and estimated customer life. Partner referral fees are deferred and then amortized on a straight-line basis over the related contractual period, as the fees for renewals are commensurate with fees incurred for the initial contract. Deferred customer acquisition costs and partner referral fees are included within other assets and prepaid expenses and other current assets, respectively, on the condensed consolidated balance sheets.

Amortization expense related to the asset recognized from the costs to obtain a contract with a customer is included in sales and marketing expenses in the condensed consolidated statements of operations and was $5.3 million and $3.3 million for the quarters ended March 31, 2018 and 2017, respectively.

Recently issued accounting pronouncements not yet adopted

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 June 2016, the FASB issued guidance which requires that financial assets measured at amortized cost 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

12


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 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.

In July 2017, the FASB issued guidance which changes the classification analysis of certain equity-linked financial instruments or embedded features, for example warrants and convertible debt, with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument or embedded conversion option no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. This new guidance also amends existing earnings per share guidance to recognize the effect of the down round feature when it is triggered. 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. If the guidance is adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. This new guidance may be adopted on a modified retrospective approach by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period in which the guidance is effective or on a full retrospective basis. The Company’s warrants to purchase common stock, which were exercised in May 2017, were liability classified and recorded at fair value each period as a result of down round features. The Company is assessing the impact of this guidance on its consolidated financial statements and its adoption method.

In February 2018, the FASB issued an Accounting Standard Update (“ASU”) that provides companies with an option to reclassify stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income to retained earnings. The guidance will be effective for the Company beginning in the first quarter of 2019 with early adoption permitted, and would be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the tax rate as a result of the Tax Act is recognized. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

Recently adopted accounting pronouncements

In May 2014, the Financial Accounting Standards Board (the “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. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the new revenue guidance effective January 1, 2018 using the full retrospective method to restate each prior reporting period presented. The Company implemented internal controls and key system functionality to enable the preparation of financial information and adoption. The most significant impact of the standard relates to the Company’s accounting for the incremental costs of obtaining a contract, such as sales commissions. Under the new revenue standard, commissions are recognized over an estimated period of benefit of five years rather than over the non-cancelable contract term. The standard also impacted the Company’s accounting for on-premise solutions which includes software license, maintenance and support fees on Runbook solutions. Under the new guidance, the Company recognizes software license revenue at the time of delivery rather than over the maintenance term. Revenue recognition related to subscription, support, and professional services fees for access to the Company’s SaaS platform is substantially unchanged. Adoption of the standard using the full retrospective method required the Company to restate certain previously reported results; see Note 3 – “Revenues” for additional information regarding the impacts to previously reported results.

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. The Company adopted this guidance effective January 1, 2018, and all prior periods have been restated, as required by the new standard. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

13


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 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 Company adopted this standard effective January 1, 2018, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In May 2017, the FASB issued guidance to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under this guidance an entity should account for the effects of a modification unless all the following are met: 1) The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and 3) The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The Company adopted this standard effective January 1, 2018, and will apply this guidance to modifications of stock-based compensation arrangements, if any, after this date. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

Note 3 – Revenues

The Company adopted the new revenue standard effective January 1, 2018 using the full retrospective method to restate each prior reporting period presented.

Impacts to previously reported results

The following table presents the effect of the adoption of ASC 606 on the Company’s condensed consolidated balance sheet (unaudited):

 

 

December 31, 2017

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

(in thousands)

 

Accounts receivable, net

$

61,589

 

 

$

329

 

 

$

61,918

 

Prepaid expenses and other current assets

$

19,785

 

 

$

(5,829

)

 

$

13,956

 

Total current assets

$

193,954

 

 

$

(5,500

)

 

$

188,454

 

Other assets

$

1,391

 

 

$

25,429

 

 

$

26,820

 

Total assets

$

440,884

 

 

$

19,929

 

 

$

460,813

 

Deferred revenue

$

106,903

 

 

$

(2,719

)

 

$

104,184

 

Total current liabilities

$

137,039

 

 

$

(2,719

)

 

$

134,320

 

Deferred tax liabilities, net

$

1,328

 

 

$

415

 

 

$

1,743

 

Deferred revenue, noncurrent

$

912

 

 

$

(444

)

 

$

468

 

Total liabilities

$

146,256

 

 

$

(2,748

)

 

$

143,508

 

Accumulated deficit

$

(125,467

)

 

$

22,677

 

 

$

(102,790

)

Total stockholders' equity

$

294,628

 

 

$

22,677

 

 

$

317,305

 

Total liabilities and stockholders' equity

$

440,884

 

 

$

19,929

 

 

$

460,813

 

 

 

 

 

 

 

 

 

 

 

 

 

14


The following table presents the effect of the adoption of ASC 606 on the Company’s condensed consolidated statement of operations (unaudited):

 

 

Quarter Ended March 31, 2017

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

(in thousands, except per share data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

  Subscription and support

$

37,051

 

 

$

(493

)

 

$

36,558

 

  Professional services

 

1,583

 

 

 

40

 

 

 

1,623

 

Total revenues

$

38,634

 

 

$

(453

)

 

$

38,181

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

Subscription and support

$

7,777

 

 

$

(22

)

 

$

7,755

 

Total cost of revenues

$

9,232

 

 

$

(22

)

 

$

9,210

 

Gross profit

$

29,402

 

 

$

(431

)

 

$

28,971

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

  Sales and marketing

$

23,496

 

 

$

(1,676

)

 

$

21,820

 

Loss from operations

$

(8,295

)

 

$

1,245

 

 

$

(7,050

)

Loss before income taxes

$

(9,075

)

 

$

1,245

 

 

$

(7,830

)

Benefit from income taxes

$

(65

)

 

$

(80

)

 

$

(145

)

Net loss

$

(9,010

)

 

$

1,325

 

 

$

(7,685

)

Basic net loss per share

$

(0.18

)

 

$

0.03

 

 

$

(0.15

)

Diluted net loss per share

$

(0.18

)

 

$

0.03

 

 

$

(0.15

)

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents the effect of the adoption of ASC 606 on the Company’s condensed consolidated statement of cash flows (unaudited):

 

 

Quarter Ended March 31, 2017

 

 

As Reported

 

 

Adjustments

 

 

As Adjusted

 

 

(in thousands)

 

Net loss

$

(9,010

)

 

$

1,325

 

 

$

(7,685

)

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

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

$

(162

)

 

$

(73

)

 

$

(235

)

Prepaid expenses and other current assets

$

(1,029

)

 

$

(248

)

 

$

(1,277

)

Other assets

$

(22

)

 

$

(1,412

)

 

$

(1,434

)

Deferred revenue

$

8,014

 

 

$

408

 

 

$

8,422

 

 

 

 

 

 

 

 

 

 

 

 

 

There was no effect to net cash provided by (used in) operating, investing, or financing activities.

Disaggregation of Revenues

The Company disaggregates its revenue from contracts with customers by geographic location and market, 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 March 31,

 

 

2018

 

 

2017

 

 

 

 

 

 

*As Adjusted

 

United States

$

41,012

 

 

$

31,215

 

International

 

10,272

 

 

 

6,966

 

 

$

51,284

 

 

$

38,181

 

15


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

 

 

Quarter Ended March 31,

 

 

2018

 

 

2017

 

 

 

 

 

 

*As Adjusted

 

Enterprise

$

42,511

 

 

$

32,038

 

Mid-market

 

8,773

 

 

 

6,143

 

 

$

51,284

 

 

$

38,181

 

 

 

 

 

 

 

 

 

 

Note 4 – Balance Sheet Components

Investments in Marketable Securities

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

 

 

 

March 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

21,770

 

 

$

 

 

$

(36

)

 

$

21,734

 

Corporate bonds

 

 

33,113

 

 

 

 

 

 

(97

)

 

 

33,016

 

Commercial paper

 

 

28,418

 

 

 

 

 

 

 

 

 

28,418

 

 

 

$

83,301

 

 

$

 

 

$

(133

)

 

$

83,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

21,454

 

 

$

 

 

$

(19

)

 

$

21,435

 

Corporate bonds

 

 

32,437

 

 

 

 

 

 

(43

)

 

 

32,394

 

Commercial paper

 

 

25,048

 

 

 

 

 

 

 

 

 

25,048

 

Asset-backed securities

 

 

2,600

 

 

 

 

 

 

(1

)

 

 

2,599

 

 

 

$

81,539

 

 

$

 

 

$

(63

)

 

$

81,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the quarters ended March 31, 2018 and 2017, there were no sales of marketable securities and, accordingly, there were no realized gains or losses recognized in the Company’s unaudited condensed consolidated statements of operations. Net gains and losses related to maturities of marketable securities that were reclassified from accumulated other comprehensive loss to earnings in the unaudited condensed consolidated statements of operations were not material for the quarters ended March 31, 2018 and 2017.

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

 

 

 

March 31, 2018

 

 

 

Amortized

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Maturing within 1 year

 

$

62,962

 

 

$

62,892

 

Maturing between 1 year and 2 years

 

 

20,339

 

 

 

20,276

 

 

 

$

83,301

 

 

$

83,168

 

 

 

 

 

 

 

 

 

 

16


 

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Partner referral fees

 

$

7,873

 

 

$

7,945

 

Restricted cash

 

200

 

 

400

 

Other prepaid expenses and other current assets

 

 

7,552

 

 

 

5,611

 

 

 

$

15,625

 

 

$

13,956

 

 

 

 

 

 

 

 

 

 

 

Other Assets

Other assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Deferred customer contract acquisition costs

 

$

26,378

 

 

$

25,338