BlackLine(BL) - 2024 Q2 - Quarterly Report

Part I. Financial Information Presents BlackLine, Inc.'s financial statements, management's discussion and analysis, and market risk disclosures Item 1. Financial Statements Presents BlackLine, Inc.'s unaudited condensed consolidated financial statements for the quarter and six months ended June 30, 2024 and 2023, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes Unaudited Condensed Consolidated Balance Sheets The unaudited condensed consolidated balance sheets show the company's financial position at June 30, 2024, compared to December 31, 2023, highlighting changes in assets, liabilities, and stockholders' equity | Metric | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Assets: | | | | Cash and cash equivalents | $616,629 | $271,117 | | Marketable securities | $428,461 | $933,355 | | Total current assets | $1,210,206 | $1,407,324 | | Goodwill | $448,965 | $448,965 | | Total assets | $1,890,682 | $2,100,765 | | Liabilities & Equity: | | | | Total current liabilities | $619,655 | $642,565 | | Convertible senior notes | $249,888 | $249,233 | | Total liabilities | $1,532,851 | $1,809,821 | | Total stockholders' equity | $325,763 | $260,881 | Unaudited Condensed Consolidated Statements of Operations The statements of operations reveal significant growth in net income for both the quarter and six months ended June 30, 2024, driven by increased revenues and a substantial gain on extinguishment of convertible senior notes | Metric | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :--------------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Subscription and support revenue | $151,787 | $135,881 | $301,288 | $266,307 | | Total revenues | $160,506 | $144,574 | $317,967 | $283,558 | | Gross profit | $120,158 | $107,458 | $238,522 | $211,171 | | Income from operations | $2,208 | $17,920 | $3,956 | $2,607 | | Gain on extinguishment of convertible senior notes | $65,112 | $— | $65,112 | $— | | Net income attributable to BlackLine, Inc. | $76,690 | $30,849 | $87,519 | $18,841 | | Basic net income per share | $1.24 | $0.51 | $1.42 | $0.31 | | Diluted net income per share | $0.22 | $0.45 | $0.39 | $0.30 | - Net income attributable to BlackLine, Inc. increased significantly by 148.6% for the quarter ended June 30, 2024, and by 364.5% for the six months ended June 30, 2024, primarily due to a $65.1 million gain on extinguishment of convertible senior notes[11] Unaudited Condensed Consolidated Statements of Comprehensive Income The comprehensive income statements show net income adjusted for other comprehensive income (loss) items, such as unrealized gains/losses on marketable securities and foreign currency translation adjustments | Metric | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :---------------------------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Net income | $74,959 | $28,066 | $89,729 | $21,335 | | Other comprehensive loss | $(173) | $(1,379) | $(971) | $(158) | | Comprehensive income | $74,786 | $26,687 | $88,758 | $21,177 | | Comprehensive income attributable to BlackLine, Inc. | $74,363 | $26,448 | $88,001 | $20,873 | Unaudited Condensed Consolidated Statements of Stockholders' Equity The statements of stockholders' equity detail changes in common stock, additional paid-in capital, accumulated other comprehensive loss, and accumulated deficit, reflecting equity transactions and net income for the periods | Metric | Balance at Dec 31, 2023 (in thousands) | Balance at June 30, 2024 (in thousands) | | :------------------------------------------------------------------------------------ | :----------------------------------- | :---------------------------------- | | Common Shares | 61,515 | 62,171 | | Common Stock Amount | $615 | $622 | | Additional Paid-in Capital | $474,863 | $451,737 | | Accumulated Other Comprehensive Income (Loss) | $205 | $(561) | | Accumulated Deficit | $(214,802) | $(126,035) | | Total Stockholders' Equity | $260,881 | $325,763 | - Total stockholders' equity increased from $260.9 million at December 31, 2023, to $325.8 million at June 30, 2024, primarily due to net income attributable to BlackLine, Inc. and stock-based compensation, partially offset by the purchase of capped calls[16] Unaudited Condensed Consolidated Statements of Cash Flows The cash flow statements show a significant increase in cash provided by operating activities and a shift from cash used in investing activities to cash provided, while financing activities resulted in a net cash outflow for the six months ended June 30, 2024 | Metric | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $91,123 | $47,418 | | Net cash provided by (used in) investing activities | $506,431 | $(46,967) | | Net cash provided by (used in) financing activities | $(251,629) | $3,304 | | Net increase in cash, cash equivalents, and restricted cash | $345,504 | $3,548 | | Cash, cash equivalents, and restricted cash, end of period | $616,867 | $204,755 | - Net cash provided by operating activities increased by 92.2% to $91.1 million for the six months ended June 30, 2024, compared to $47.4 million in the prior year, driven by higher net income[21] - Investing activities shifted from a net outflow of $47.0 million in 2023 to a net inflow of $506.4 million in 2024, primarily due to net proceeds from maturities and sales of marketable securities[21] - Financing activities resulted in a net cash outflow of $251.6 million in 2024, mainly due to the partial repurchase of 2026 Notes and purchase of capped calls, partially offset by proceeds from 2029 Notes issuance[21] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering the company's business, accounting policies, non-controlling interests, intangible assets, balance sheet components, fair value measurements, convertible senior notes, restructuring costs, equity awards, income taxes, net income per share, commitments, unearned revenue, geographic information, and subsequent events Note 1 – The Company BlackLine, Inc. provides financial accounting close solutions primarily as Software as a Service (SaaS), enabling customers to manage financial close, intercompany, invoice-to-cash, and consolidation processes - BlackLine, Inc. provides financial accounting close solutions primarily as Software as a Service (SaaS)[25] - The company's solutions address financial close, intercompany, invoice-to-cash, and consolidation processes[25] - BlackLine operates through its wholly-owned subsidiary, BlackLine Systems, Inc., and has international offices in Australia, Canada, France, Germany, India, Japan, the Netherlands, Poland, Romania, Singapore, and the United Kingdom[25] Note 2 – Basis of Presentation, Significant Accounting Policies and Recently-Issued Accounting Pronouncements The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim information, with certain disclosures condensed or omitted - Financial statements are prepared in accordance with GAAP for interim information, consistent with audited annual statements[26] - Management makes estimates for revenue arrangements, allowances, fair values, goodwill, long-lived assets, income taxes, contingencies, and stock-based compensation[27] - No material changes to significant accounting policies or recently adopted pronouncements since December 31, 2023[29][30] - The company is evaluating the impact of new FASB ASUs on Segment Reporting (2023-07) and Income Tax Disclosures (2023-09), effective for fiscal years beginning after December 15, 2023, and 2024, respectively[31] Note 3 – Redeemable Non-Controlling Interest BlackLine holds a 51% majority ownership in BlackLine K.K., a consolidated entity focused on sales in Japan, with the non-controlling interest classified outside permanent equity - BlackLine holds a 51% majority ownership in BlackLine K.K., a consolidated entity focused on sales in Japan[32] - The common stock held by investors is callable by BlackLine or puttable by investors upon certain contingent events, with redemption value based on BlackLine K.K.'s discrete revenues[32] - The redeemable non-controlling interest is classified outside of permanent equity and reported at the greater of initial carrying amount adjusted for earnings or estimated redemption value[32] | Metric | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :------------------------------------------------------------------------------------ | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Balance at beginning of period | $33,900 | $29,152 | $30,063 | $23,895 | | Net income attributable to redeemable non-controlling interest | $524 | $320 | $962 | $405 | | Adjustment to redeemable non-controlling interest | $(2,255) | $(3,103) | $1,248 | $2,089 | | Balance at end of period | $32,068 | $26,288 | $32,068 | $26,288 | Note 4 – Intangible Assets and Goodwill The company's intangible assets, primarily developed technology and customer relationships, decreased in net carrying amount due to amortization, while goodwill remained unchanged | Intangible Asset | June 30, 2024 Net Carrying Amount (in thousands) | December 31, 2023 Net Carrying Amount (in thousands) | | :----------------------- | :--------------------------------------------- | :----------------------------------------------- | | Trade name | $— | $— | | Developed technology | $63,701 | $70,468 | | Customer relationships | $3,971 | $7,437 | | Defensive patent | $993 | $1,151 | | Total Intangible Assets | $68,665 | $79,056 | | Goodwill | Amount (in thousands) | | :--------------------------- | :-------------------- | | Balance at December 31, 2023 | $448,965 | | Balance at June 30, 2024 | $448,965 | - Net carrying amount of intangible assets decreased by $10.4 million from December 31, 2023, to June 30, 2024, primarily due to amortization of developed technology and customer relationships[34] - Goodwill remained constant at $448.965 million for both periods, with no additions from acquisitions[35] Note 5 – Balance Sheet Components This note details marketable securities, deferred customer contract acquisition costs, and the composition of accrued expenses and other current liabilities | Marketable Securities | June 30, 2024 Fair Value (in thousands) | December 31, 2023 Fair Value (in thousands) | | :-------------------- | :------------------------------------ | :---------------------------------------- | | U.S. treasury securities | $275,535 | $523,974 | | Commercial paper | $110,176 | $241,429 | | U.S. government agencies | $42,750 | $167,952 | | Total | $428,461 | $933,355 | - Marketable securities decreased by $504.9 million from December 31, 2023, to June 30, 2024, with all having a contractual maturity of less than two years[36][37] - Deferred customer contract acquisition costs were $87.1 million at June 30, 2024, down from $89.9 million at December 31, 2023[39] | Accrued Expenses and Other Current Liabilities | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--------------------------------------------- | :--------------------------- | :------------------------------- | | Accrued salaries and employee benefits | $27,468 | $33,344 | | Accrued income and other taxes payable | $9,942 | $9,408 | | Accrued restructuring costs | $796 | $1,569 | | Other accrued expenses and current liabilities | $13,718 | $15,369 | | Total | $51,924 | $59,690 | Note 6 – Fair Value Measurements The company measures financial assets and liabilities at fair value using a hierarchy, with cash equivalents and marketable securities primarily Level 1 and 2 | Financial Assets (Fair Value) | June 30, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------------- | :--------------------------- | :------------------------------- | | Cash equivalents | $543,056 | $207,211 | | Marketable securities | $428,461 | $933,355 | | Total assets | $971,517 | $1,140,566 | | Contingent consideration liability | $— | $— | - The contingent consideration liability for the FourQ acquisition was zero at June 30, 2024, compared to $19.1 million at June 30, 2023, indicating the targets were not met or the liability was settled[43] - Valuation techniques for Level 1 instruments are derived from quoted market prices for identical instruments, while Level 2 instruments use broker reports with quoted market prices for similar instruments[43] Note 7 – Convertible Senior Notes BlackLine has three series of convertible senior notes: 2024 Notes (repaid post-period), 2026 Notes (partially repurchased), and newly issued 2029 Notes, with capped calls in place to reduce potential dilution | Convertible Senior Notes | June 30, 2024 Net Carrying Amount (in thousands) | December 31, 2023 Net Carrying Amount (in thousands) | | :----------------------- | :--------------------------------------------- | :----------------------------------------------- | | 2024 Notes | $249,888 | $249,233 | | 2026 Notes | $228,739 | $1,140,608 | | 2029 Notes | $662,240 | $— | | Total | $1,140,867 | $1,389,841 | - The $250.0 million aggregate principal amount of 0.125% Convertible Senior Notes due in 2024 were repaid on August 1, 2024[45][71] - The company repurchased $919.8 million aggregate principal amount of 2026 Notes, resulting in a $65.1 million gain on extinguishment recognized in Q2 2024[46] - BlackLine issued $675.0 million aggregate principal amount of 1.00% Convertible Senior Notes due 2029 in May/June 2024, with an initial conversion price of approximately $68.47 per share[49] - Capped call transactions were entered into for the 2029 Notes at a cost of $59.7 million to reduce potential stock dilution upon conversion[52] Note 8 – Restructuring Costs Restructuring costs increased due to additional one-time termination benefits for the fiscal 2023 program, with the accrual balance at $0.8 million | Metric | Q2 2024 (in thousands) | 6 Months 2024 (in thousands) | | :----------------------------------- | :--------------------- | :--------------------------- | | Restructuring charges | $928 | $1,372 | | Accrual balance as of June 30, 2024 | $796 | $796 | - Restructuring charges increased by $793 thousand for Q2 2024 compared to Q2 2023, and by $223 thousand for the six months ended June 30, 2024, compared to the prior year, due to additional one-time termination benefits for the fiscal 2023 program[99] - Cumulative costs for fiscal 2023 and 2022 restructuring programs were $11.2 million and $5.0 million, respectively, as of June 30, 2024, with no material additional expenses anticipated[54] Note 9 – Equity Awards Stock-based compensation expense increased for the quarter but remained stable for the six-month period, with equity awards including stock options and restricted stock units | Stock-based Compensation Expense | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Total stock-based compensation | $22,726 | $19,948 | $41,288 | $40,386 | - Stock-based compensation expense increased by $2.8 million (13.9%) for the quarter ended June 30, 2024, compared to the prior year, and by $0.9 million (2.2%) for the six months ended June 30, 2024[55] | Equity Awards (in thousands) | Nonvested at Dec 31, 2023 | Nonvested at June 30, 2024 | | :------------------------------------------- | :------------------------ | :------------------------- | | Restricted stock units - service-only | 2,208 | 3,007 | | Restricted stock units - performance and service (grant dates established) | 113 | 198 | | Restricted stock units - performance and service (no grant dates established) | 235 | 244 | Note 10 – Income Taxes Income tax expense significantly increased due to a $3.0 million tax expense from the gain on extinguishment of 2026 Notes and changes in profitable foreign jurisdictions | Income Tax Expense | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :----------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | Provision for income taxes | $4,337 | $926 | $5,206 | $1,554 | - The increase in income tax expense for Q2 2024 (368% YoY) and the six months ended June 30, 2024 (235% YoY) was primarily due to a $3.0 million tax expense from the gain on partial extinguishment of 2026 Notes and changes in profitable foreign jurisdictions[62][103] - BlackLine maintains a full valuation allowance on its U.S. federal and state net deferred tax assets but believes there is a reasonable possibility of releasing a portion of this allowance in the near term due to recent earnings[62] Note 11 – Net Income per Share Basic and diluted net income per share significantly increased due to higher net income, despite the dilutive effect of convertible senior notes and other securities | Net Income Per Share | Q2 2024 | Q2 2023 | 6 Months 2024 | 6 Months 2023 | | :------------------------------------------------- | :------ | :------ | :------------ | :------------ | | Basic net income per share attributable to BlackLine, Inc. | $1.24 | $0.51 | $1.42 | $0.31 | | Diluted net income per share attributable to BlackLine, Inc. | $0.22 | $0.45 | $0.39 | $0.30 | | Shares used to calculate basic net income per share (in thousands) | 61,979 | 60,700 | 61,811 | 60,445 | | Shares used to calculate diluted net income per share (in thousands) | 72,522 | 71,801 | 72,708 | 71,801 | - Basic net income per share increased by 143% for Q2 2024 and 358% for the six months ended June 30, 2024[63] - Diluted net income per share decreased for Q2 2024 but increased for the six months ended June 30, 2024, reflecting the impact of interest expense, gain on extinguishment of convertible senior notes, and dilutive securities[63] Note 12 – Commitments and Contingencies BlackLine is not involved in material legal proceedings and provides indemnification in the ordinary course of business without accruing liability - BlackLine is not a party to any legal proceedings or aware of any pending or threatened litigation that would have a material adverse effect on its business, operating results, cash flows, or financial condition[67][127] - The company provides indemnification to customers, vendors, investors, directors, and officers, but has not accrued a liability due to the low probability or estimability of incurring payment obligations[67] Note 13 – Unearned Revenue and Performance Obligations BlackLine recognized $217.5 million in revenue from deferred balances, with $847.8 million in unrecognized revenue, 57% expected within 12 months - Revenue of $217.5 million was recognized during the six months ended June 30, 2024, from the deferred revenue balance[68] - Contracted but unrecognized revenue was $847.8 million at June 30, 2024[68] - Approximately 57% of the unrecognized revenue is expected to be recognized over the next 12 months[68] Note 14 – Geographic Information BlackLine disaggregates revenue by geographic location, showing continued growth in both United States and International markets | Geographic Region | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :---------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | United States | $112,836 | $104,052 | $224,243 | $204,064 | | International | $47,670 | $40,522 | $93,724 | $79,494 | | Total | $160,506 | $144,574 | $317,967 | $283,558 | - United States revenue increased by 8.4% for Q2 2024 and 9.9% for the six months ended June 30, 2024[70] - International revenue increased by 17.6% for Q2 2024 and 17.9% for the six months ended June 30, 2024[70] Note 15 – Subsequent Events On August 1, 2024, BlackLine repaid its outstanding $250.0 million 2024 Convertible Senior Notes using existing cash on hand - On August 1, 2024, BlackLine repaid $250.0 million aggregate principal amount of 2024 Notes and $0.2 million of accrued interest using cash on hand[71] - The 2024 Capped Calls expired upon the repayment of the 2024 Notes[71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on BlackLine's financial condition and operational results, highlighting revenue growth, macroeconomic impacts, key metrics, and cash flow activities Overview BlackLine provides cloud-based financial accounting solutions, serving 4,435 customers and 396,366 users, with 95% of revenue from subscriptions - BlackLine offers comprehensive cloud-based solutions for financial close, intercompany, invoice-to-cash, and consolidation processes[74] - As of June 30, 2024, the company had 4,435 customers and 396,366 individual users[74] - Approximately 95% of revenue is from subscriptions to its cloud-based platform, and 5% from professional services for the six months ended June 30, 2024[75] - The company expects sales cycles to lengthen and become less predictable due to increased focus on larger contract sizes and more complex strategic products[76] Global Macroeconomic Factors BlackLine's operating results are influenced by global macroeconomic conditions, such as inflation and rising interest rates, which delay customer purchasing decisions - Macroeconomic conditions (recession, inflation, rising interest rates, economic downturns) can adversely affect demand for BlackLine's products[77] - Economic uncertainty has caused customers to delay and defer purchasing decisions, negatively impacting near-term demand[77] Key Metrics BlackLine monitors dollar-based net revenue retention rate, number of customers, and number of users to evaluate business performance | Metric | June 30, 2024 | March 31, 2024 | December 31, 2023 | September 30, 2023 | June 30, 2023 | | :-------------------------------- | :------------ | :------------- | :---------------- | :----------------- | :------------ | | Dollar-based net revenue retention rate | 104% | 105% | 106% | 105% | 104% | | Number of customers | 4,435 | 4,411 | 4,398 | 4,368 | 4,279 | | Number of users | 396,366 | 387,050 | 386,814 | 381,892 | 377,585 | - Dollar-based net revenue retention rate marginally declined from 105% at March 31, 2024, to 104% at June 30, 2024, due to attrition[79] - Number of customers increased by 4% and number of users increased by 5% at June 30, 2024, compared to June 30, 2023[91] Non-GAAP Financial Measures BlackLine uses non-GAAP financial measures to provide consistency and comparability in evaluating business performance by adjusting for non-cash expenses - Non-GAAP measures (gross profit, operating income, net income) are used to evaluate business performance, provide consistency, and facilitate comparisons[83] - Non-GAAP adjustments include amortization of acquired developed technology, stock-based compensation, change in fair value of contingent consideration, transaction-related costs, legal settlement gains/costs, restructuring costs, amortization of debt issuance costs, adjustment to redeemable non-controlling interest, and gain on extinguishment of convertible senior notes[84][85] Reconciliation of Non-GAAP Financial Measures Non-GAAP gross profit, operating income, and net income were significantly higher than GAAP counterparts due to adjustments for non-cash and acquisition-related costs | Metric | Q2 2024 (in thousands) | Q2 2023 (in thousands) | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :---------------------------------------------------- | :--------------------- | :--------------------- | :--------------------------- | :--------------------------- | | GAAP gross profit | $120,158 | $107,458 | $238,522 | $211,171 | | Non-GAAP gross profit | $127,232 | $113,885 | $251,628 | $223,557 | | GAAP operating income | $2,208 | $17,920 | $3,956 | $2,607 | | Non-GAAP operating income | $31,731 | $19,324 | $58,531 | $34,889 | | GAAP net income attributable to BlackLine, Inc. | $76,690 | $30,849 | $87,519 | $18,841 | | Non-GAAP net income attributable to BlackLine, Inc. | $42,928 | $30,728 | $83,003 | $55,828 | - Non-GAAP gross margin improved to 79.3% in Q2 2024 from 78.8% in Q2 2023, and to 79.1% for the six months ended June 30, 2024, from 78.8% in the prior year[87] - Non-GAAP operating income increased by 64.2% for Q2 2024 and 67.8% for the six months ended June 30, 2024, reflecting adjustments for non-cash and acquisition-related expenses[87] Results of Operations BlackLine's results show increased total revenues and gross profit, varied operating expenses, and a significant gain on extinguishment of convertible senior notes boosting net income Revenues Total revenues increased by 11% for the quarter and 12% for the six months ended June 30, 2024, driven by subscription and support growth from new customers and expansion with existing customers | Revenue Type | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :----------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Subscription and support | $151,787 | $135,881 | $15,906 | 12% | $301,288 | $266,307 | $34,981 | 13% | | Professional services | $8,719 | $8,693 | $26 | 0% | $16,679 | $17,251 | $(572) | (3%) | | Total revenues | $160,506 | $144,574 | $15,932 | 11% | $317,967 | $283,558 | $34,409 | 12% | - The increase in revenues was primarily driven by acquiring new customers and existing customers growing through additional users and product expansion[91] Cost of revenues Total cost of revenues increased by 9% for the quarter and 10% for the six months ended June 30, 2024, primarily due to higher computer software expenses (cloud hosting and software purchases) and increased amortization of developed technology | Cost of Revenues Type | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :-------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Subscription and support | $33,756 | $30,630 | $3,126 | 10% | $65,808 | $59,142 | $6,666 | 11% | | Professional services | $6,592 | $6,486 | $106 | 2% | $13,637 | $13,245 | $392 | 3% | | Total cost of revenues | $40,348 | $37,116 | $3,232 | 9% | $79,445 | $72,387 | $7,058 | 10% | | Gross margin | 74.9% | 74.3% | | | 75.0% | 74.5% | | | - The increase in total cost of revenues for Q2 2024 was primarily due to a $2.0 million increase in computer software expenses, a $0.8 million increase in amortization of developed technology, and a $0.5 million increase in salaries, benefits, and stock-based compensation[92] - For the six months ended June 30, 2024, the increase was mainly due to a $4.9 million increase in computer software expenses and a $1.8 million increase in amortization of developed technology[92] Sales and marketing Sales and marketing expenses decreased by 4% for the quarter and 3% for the six months ended June 30, 2024, primarily due to streamlined marketing efforts and a decrease in headcount-related compensation, partially offset by increased professional fees and in-person event costs | Sales and Marketing | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :------------------ | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Sales and marketing | $60,248 | $62,749 | $(2,501) | (4%) | $121,359 | $124,680 | $(3,321) | (3%) | | Percentage of total revenues | 37.5% | 43.4% | | | 38.2% | 44.0% | | | - The decrease in Q2 2024 was mainly due to a $1.7 million decrease in marketing expenses and a $0.9 million decrease in salaries, benefits, and stock-based compensation[94] - For the six months ended June 30, 2024, the decrease was primarily due to a $4.1 million decrease in headcount-driven compensation and a $1.7 million decrease in marketing expenses[95] Research and development Research and development expenses decreased by 4% for the quarter and 6% for the six months ended June 30, 2024, primarily due to reduced transaction-related costs, increased capitalized software costs, and lower compensation expenses from increased offshore headcount | Research and Development | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :----------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Research and development, net | $25,721 | $26,802 | $(1,081) | (4%) | $50,736 | $53,907 | $(3,171) | (6%) | | Capitalized internally developed software costs | $(6,192) | $(5,657) | $(535) | 9% | $(11,750) | $(11,430) | $(320) | 3% | - The decrease in Q2 2024 R&D expenses was due to a $0.9 million decrease in transaction-related costs and a $0.5 million increase in capitalized software costs[96] - For the six months ended June 30, 2024, the decrease was driven by a $2.0 million decrease in compensation, a $1.2 million decrease in transaction-related costs, and a $0.3 million increase in capitalized software costs[96] - BlackLine remains committed to innovation and investing in artificial intelligence to enhance its platform[96] General and administrative General and administrative expenses significantly increased by $31.2 million for the quarter and $32.3 million for the six months ended June 30, 2024, primarily due to the absence of a decrease in the fair value of FourQ contingent consideration (which occurred in the prior year) and increased compensation expenses | General and Administrative | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :------------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | General and administrative | $31,053 | $(148) | $31,201 | N/M | $61,099 | $28,828 | $32,271 | 112% | | Percentage of total revenues | 19.3% | (0.1%) | | | 19.2% | 10.2% | | | - The increase in Q2 2024 was primarily due to a $25.5 million increase from the prior year's decrease in FourQ contingent consideration fair value and a $6.0 million increase in salaries, benefits, and stock-based compensation[98] - For the six months ended June 30, 2024, the increase was driven by a $22.4 million impact from FourQ contingent consideration, a $7.8 million increase in compensation, and a $1.9 million increase in net foreign currency losses[98] Restructuring costs Restructuring costs increased significantly for the quarter ended June 30, 2024, and moderately for the six-month period, due to additional one-time termination benefits for the fiscal 2023 restructuring program | Restructuring Costs | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :------------------ | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Restructuring costs | $928 | $135 | $793 | N/M | $1,372 | $1,149 | $223 | 19% | - The increase in restructuring costs for Q2 2024 was due to additional one-time termination benefits for the fiscal 2023 restructuring program[99] Interest income Interest income increased by 12% for the quarter and 27% for the six months ended June 30, 2024, primarily due to higher average interest rates on investments and cash balances, and to a lesser extent, increased average balances | Interest Income | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :-------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Interest income | $14,065 | $12,542 | $1,523 | 12% | $29,425 | $23,207 | $6,218 | 27% | - The increase in interest income was driven by increased average interest rates on investments and cash balances, and a slight increase in average balances[100] Interest expense Interest expense increased by 42% for the quarter and 22% for the six months ended June 30, 2024, primarily due to the amortization of debt issuance costs and cash interest related to the newly issued 2029 Notes, partially offset by a decrease from the partial repurchase of 2026 Notes | Interest Expense | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :--------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Interest expense | $2,089 | $1,470 | $619 | 42% | $3,558 | $2,925 | $633 | 22% | - The increase was primarily due to amortization of debt issuance costs and cash interest expense from the 2029 Notes, partially offset by reduced interest expense from the partial repurchase of 2026 Notes[101] Gain on extinguishment of convertible senior notes BlackLine recognized a $65.1 million gain on extinguishment of convertible senior notes for both the quarter and six months ended June 30, 2024, resulting from the partial repurchase of its 2026 Notes | Gain on Extinguishment | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :--------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Gain on extinguishment of convertible senior notes | $65,112 | $— | $65,112 | N/M | $65,112 | $— | $65,112 | N/M | - The gain resulted from the partial repurchase of the 2026 Notes[102] Provision for income taxes Provision for income taxes significantly increased for both the quarter and six months ended June 30, 2024, primarily due to a $3.0 million tax expense associated with the gain on partial extinguishment of the 2026 Notes and changes in the mix of profitable foreign jurisdictions | Provision for Income Taxes | Q2 2024 (in thousands) | Q2 2023 (in thousands) | Change $ (in thousands) | Change % | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | Change $ (in thousands) | Change % | | :------------------------- | :--------------------- | :--------------------- | :---------------------- | :------- | :--------------------------- | :--------------------------- | :---------------------- | :------- | | Provision for income taxes | $4,337 | $926 | $3,411 | 368% | $5,206 | $1,554 | $3,652 | 235% | - The increase was primarily due to a $3.0 million tax expense associated with the gain on partial extinguishment of the 2026 Notes and changes in the mix of profitable foreign jurisdictions[103] Liquidity and Capital Resources As of June 30, 2024, BlackLine had $1.0 billion in cash, cash equivalents, and marketable securities, expected to be sufficient for financial obligations for at least 12 months - As of June 30, 2024, BlackLine had $1.0 billion in cash, cash equivalents, and marketable securities[104] - Principal sources of liquidity include short-term money market mutual funds, commercial paper, U.S. treasury securities, and U.S. government agencies[104] - Existing liquidity and cash from operations are expected to be sufficient for working capital, capital expenditures, and financing obligations for at least the next 12 months[105] Contractual Obligations and Commitments BlackLine's contractual obligations include $1.2 billion in convertible senior notes, capped calls, lease liabilities, and purchase obligations - BlackLine had $1.2 billion in aggregate principal amount of convertible senior notes outstanding at June 30, 2024, with $250.0 million repaid on August 1, 2024[106] - Capped call transactions are in place for the 2024, 2026, and 2029 Notes to offset potential economic dilution of common stock[106] - Lease obligations totaled $18.9 million, and purchase obligations amounted to $41.1 million at June 30, 2024, with $22.5 million payable within 12 months[106] - The contingent consideration liability for the FourQ Acquisition was zero at June 30, 2024, and unrecognized tax liabilities were $7.8 million[107] Future Capital Requirements BlackLine's future capital needs depend on growth, R&D, M&A, and debt management, potentially requiring additional equity or debt financing - Future capital requirements depend on growth rate, strategic relationships, international operations, R&D spending, M&A, and debt management[109] - Additional equity or debt financing may be required, potentially leading to stockholder dilution or restrictive covenants[109] - There is no assurance that financing will be available on favorable terms or at all, which could adversely affect business operations and financial condition[109] Cash Flows Operating cash flows significantly increased, investing activities provided substantial cash, while financing activities resulted in a net cash outflow | Cash Flow Activity | 6 Months 2024 (in thousands) | 6 Months 2023 (in thousands) | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $91,123 | $47,418 | | Net cash provided by (used in) investing activities | $506,431 | $(46,967) | | Net cash provided by (used in) financing activities | $(251,629) | $3,304 | Net Cash Provided By Operating Activities Net cash provided by operating activities increased to $91.1 million for the six months ended June 30, 2024, primarily due to higher net income and a decrease in accounts receivable - Cash provided by operations was $91.1 million for the six months ended June 30, 2024, up from $47.4 million in the prior year[110][111] - This increase was driven by net income of $89.7 million and $10.8 million from changes in operating assets and liabilities, including a $34.0 million decrease in accounts receivable[111] - Offsetting factors included a $10.9 million decrease in accrued expenses and other current liabilities and a $7.8 million decrease in deferred revenue[111] Net Cash Provided By (Used In) Investing Activities Investing activities generated $506.4 million in cash for the six months ended June 30, 2024, a significant shift from a net use of $47.0 million in the prior year, primarily due to net proceeds from maturities and sales of marketable securities - Cash provided by investing activities was $506.4 million for the six months ended June 30, 2024[110][113] - This was primarily a result of $519.5 million of net proceeds from maturities and sales of marketable securities[113] - Cash used in investing activities for the prior year was $47.0 million, mainly due to purchases of marketable securities, capitalized software development costs, and property and equipment[113] Net Cash Provided By (Used In) Financing Activities Financing activities resulted in a net cash outflow of $251.6 million for the six months ended June 30, 2024, primarily due to the partial repurchase of 2026 Notes and the purchase of capped calls, partially offset by proceeds from the issuance of 2029 Notes - Cash used in financing activities was $251.6 million for the six months ended June 30, 2024[110][114] - Key outflows included $848.5 million for partial repurchase of 2026 Notes and $59.7 million for capped calls related to 2029 Notes[114] - These outflows were partially offset by $662.6 million in net proceeds from the issuance of 2029 Notes[114] Critical Accounting Estimates No significant changes to BlackLine's critical accounting estimates occurred during the quarter ended June 30, 2024 - No significant changes to critical accounting estimates during the quarter ended June 30, 2024[116] Recent Accounting Pronouncements BlackLine refers to Note 2 of its financial statements for a full description of recent accounting pronouncements and their potential impact on its financial condition and results of operations - Refer to Note 2 for details on recent accounting pronouncements and their expected impact[117] Item 3. Quantitative and Qualitative Disclosures About Market Risks BlackLine is exposed to market risks including interest rate, foreign exchange, and inflation risks, managed by monitoring customer financial conditions and investing in highly liquid financial instruments - BlackLine is exposed to interest rate, foreign exchange, and inflation risks in its ordinary course of business[118] - Risk mitigation strategies include monitoring customer financial condition, limiting credit exposure, and investing in highly liquid financial instruments[118] - The company does not use derivative instruments for hedging or speculative purposes[118] Interest Rate Risk BlackLine's convertible notes have fixed interest rates, and a 10% change in interest rates is not expected to materially affect its highly liquid portfolio - The 2026 and 2029 Notes have fixed annual interest rates (0.0% and 1.00% respectively), limiting economic interest rate exposure[120] - The fair value of the Notes is exposed to interest rate risk and common stock price fluctuations[120] - With $1.0 billion in highly liquid cash equivalents and marketable securities, an immediate 10% change in interest rates is not expected to materially affect the portfolio's fair value or operating results[120] Foreign Currency Risk BlackLine transacts in multiple foreign currencies, exposing it to foreign currency risk, with a hypothetical 10% change impacting cash balances by $3.3 million - BlackLine transacts in various foreign currencies, including AUD, GBP, CAD, EUR, INR, JPY, MXN, RON, and SGD, exposing it to foreign currency risk[121] - A hypothetical 10% increase or decrease in foreign currency exchange rates would impact cash balances by $3.3 million at June 30, 2024[122] - The company does not currently use foreign currency hedging contracts but will reassess its approach as international operations and associated risks grow[122] Inflation Risk Inflation has not materially affected BlackLine's business, but future significant pressures could harm the business if not offset by price increases - Inflation has not had a material effect on BlackLine's business, financial condition, or results of operations[123] - Inability to offset significant inflationary cost pressures through price increases could harm the business[123] Item 4. Controls and Procedures BlackLine's disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2024[124] - Controls and procedures, by nature, provide only reasonable, not absolute, assurance of achieving objectives[125] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024[126] Part II. Other Information Provides additional information including legal proceedings, risk factors, equity sales, other disclosures, and a list of exhibits Item 1. Legal Proceedings BlackLine is not a party to any material legal proceedings or aware of any pending or threatened litigation that would adversely affect its business - BlackLine is not currently a party to any legal proceedings or aware of any pending or threatened litigation that would have a material adverse effect on its business[127] Item 1A. Risk Factors This section outlines significant risks associated with investing in BlackLine's common stock, covering business, financial, and operational challenges Summary Risk Factors Investing in BlackLine's common stock involves high risk, including challenges in customer acquisition, macroeconomic impacts, and stock price volatility - Key risks include inability to attract new customers and expand sales, dependence on customer renewals, impact of economic uncertainty, history of losses, challenges in managing growth, and potential for fluctuating quarterly results[129] - Risks also involve providing successful product enhancements, reliance on limited software solutions, success of relationships with technology vendors, security breaches, interruptions in service, software errors, intense market competition, and stock price volatility[129][130] - Increased focus on AI/ML technologies may result in reputational harm or liability[129] Risks Related to Our Business and Industry BlackLine faces risks related to attracting and retaining customers, renewing subscriptions, economic uncertainty, managing growth, and cybersecurity threats - Inability to attract new customers and expand sales to existing customers could harm growth[131] - Dependence on customer renewals means any decline could adversely affect operating results[132] - Current economic uncertainty and unfavorable conditions could limit business growth and negatively affect operating results[134] - Failure to manage growth effectively, provide successful product enhancements, or protect against security breaches could adversely affect the business[136][137][139] - Increased focus on AI/ML technologies may result in reputational harm or liability[143] - Dependence on executive officers and key employees, and intense market competition, pose significant risks[147][149] Risks Related to Our Financial Performance or Results BlackLine has a history of losses and may not sustain profitability, with quarterly results subject to fluctuations, foreign currency risks, and goodwill impairment - BlackLine has a history of losses and may not generate sufficient revenue to achieve or sustain profitability[158][159] - Quarterly results may fluctuate due to factors like customer acquisition, sales force productivity, long sales cycles, economic conditions, and seasonality[160] - The long and increasingly variable sales cycle can cause variability in operating results[162] - Subscription revenue recognition over contract terms means downturns in new sales are not immediately reflected in operating results[163][164] - Exposure to foreign currency exchange rate fluctuations could harm results of operations[165] - Goodwill or intangible assets impairment could result in significant charges to earnings[166] - Ability to use net operating losses to offset future taxable income may be subject to limitations[167] Risks Related to Our Dependence on Third Parties BlackLine's business depends on successful relationships with technology vendors and public cloud providers, where disruptions could negatively impact operations - Business and growth depend on successful relationships with technology vendors (e.g., SAP) and business process outsourcers[169] - Reliance on third-party computer hardware and software, including SaaS applications, may cause errors or failures[170] - Dependence on public cloud providers (GCP, Azure, AWS) means any disruption could negatively impact operations and harm the business[170] - Failure to develop and maintain successful relationships with resellers could adversely affect business[171] Risks Related to Our Legal and Regulatory Environment International expansion exposes BlackLine to foreign laws, evolving privacy regulations, export controls, and potential adverse tax consequences - International operations subject BlackLine to risks from foreign laws, regulatory requirements, tariffs, and economic climates[173] - Evolving domestic and foreign privacy and cybersecurity laws (e.g., GDPR, CCPA, DPF) may limit service adoption, increase costs, and lead to compliance challenges[174][175][176] - Subject to governmental export and import controls, which could impair international competitiveness and lead to liability[177] - Changes in laws and regulations related to the internet and cloud computing could diminish demand for solutions[178] - International operations subject the company to potentially adverse tax consequences and changes in global taxation policies[180][181] Risks Related to Our Intellectual Property BlackLine's success relies on protecting its intellectual property, with risks of infringement claims and potential litigation from open-source software use - Failure to protect intellectual property rights (copyright, trade secret, trademark) could impair ability to protect proprietary technology and brand[184] - Lawsuits or claims by third parties for alleged infringement of proprietary rights could cause significant expenses or liabilities[185] - Use of open source software in products could subject the company to litigation or other actions[186] Risks Related to Ownership of Our Common Stock The market price of BlackLine's common stock may be volatile, corporate governance provisions could hinder acquisitions, and no dividends are intended - The market price of common stock may be volatile due to fluctuations in operating results, analyst expectations, and overall market trends[188] - Provisions in corporate governance documents (e.g., authorized preferred stock, classified board, supermajority voting) could make an acquisition more difficult[189][190] - BlackLine does not intend to pay dividends on common stock, so returns are limited to changes in stock value[191] - Bylaws designate Delaware state or federal courts as the exclusive forum for most disputes, potentially limiting stockholders' choice of judicial forum[192] Risks Related to Our Outstanding Convertible Notes Servicing BlackLine's convertible notes requires significant cash, and indebtedness may limit operating flexibility, with counterparty risk for capped calls - Servicing convertible notes may require significant cash, and BlackLine may not have sufficient funds for cash settlements, repurchases, or principal repayment at maturity[194] - Existing and future indebtedness may limit operating flexibility and affect the business[195] - The conditional conversion feature of the notes, if triggered, could adversely affect financial condition and operating results[197] - BlackLine is subject to counterparty risk with respect to the capped calls, which could lead to adverse tax consequences or increased dilution if a counterparty defaults[198] General Risk Factors BlackLine may require additional capital, being a public company strains resources, and failure to maintain effective internal controls could harm investor confidence - BlackLine may require additional capital to support business growth, which may not be available on acceptable terms, if at all[199] - The requirements of being a public company may strain resources, divert management's attention, and affect ability to attract and retain executive management and qualified board members[200] - Failure to maintain an effective system of internal control over financial reporting could adversely affect investor confidence and stock price[202] - Natural disasters, climate change, and other events beyond control could harm the business[204] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds BlackLine, Inc. reported no unregistered sales of equity securities, no use of proceeds from previously registered offerings, and no issuer purchases of equity securities - No unregistered sales of equity securities during the period[206] - No use of proceeds from previously registered offerings during the period[206] - No issuer purchases of equity securities during the period[206] Item 5. Other Information No officers or directors adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the last fiscal quarter - No officers or directors adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the last fiscal quarter[207] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including indentures, purchase agreements, capped call confirmations, and certifications - Exhibit list includes Indenture and Form of 1.00% Convertible Senior Notes due 2029, Purchase Agreement, and Form of Capped Call Confirmation[210] - Certifications by the Chief Executive Officer and Chief Financial Officer are included pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), and 18 U.S.C. Section 1350[210][211][212][213]