BlackLine
Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 ofincorporation or organization) (I.R.S. EmployerIdentification Number) 21300 Victory Boulevard, 12th FloorWoodland Hills, CA 91367(Address of principal executive offices, including zip code) (818) 223-9008(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $0.01 per share The NASDAQ Stock Market LLC (NASDAQ Global Select Market) Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “ExchangeAct”). Yes ☐ No ☒Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or forsuch 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 andposted 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 submitand post such files). Yes ☒ No ☐Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer☐Accelerated filer☐Non-accelerated filer☒(Do not check if a smaller reporting company)Smaller reporting company☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock onOctober 28, 2016 as reported by the NASDAQ Global Select Market on such date was approximately $261.3 million. The registrant has elected to use October 28, 2016, whichwas the initial trading date of the registrant’s common stock on the NASDAQ Global Select Market because on June 30, 2016 (the last business day of the registrant’s mostrecently completed second fiscal quarter), the registrant was a privately-held company. Shares of the registrant’s common stock held by each executive officer, director andholder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect adetermination that certain persons are affiliates of the registrant for any other purpose.As of March 3, 2017, 51,283,364 shares of the registrant’s common stock, $0.01 par value, were outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the information called for by Part III of this Annual Report on Form 10-K where indicated are hereby incorporated by reference from the Definitive Proxy Statementfor the registrant’s Annual Meeting of Stockholders to be held in 2017, which will be filed with the Securities and Exchange Commission not later than 120 days after the end ofthe registrant’s fiscal year ended December 31, 2016.  BLACKLINE, INC.2016 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page No.PART IItem 1.Business3Item 1A.Risk Factors16Item 1B.Unresolved Staff Comments40Item 2.Properties40Item 3.Legal Proceedings40Item 4.Mine Safety Disclosures40PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities41Item 6.Selected Financial Data43Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations46Item 7A.Quantitative and Qualitative Disclosures About Market Risk65Item 8.Financial Statements and Supplementary Data66Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure97Item 9A.Controls and Procedures97Item 9B.Other Information98PART IIIItem 10.Directors, Executive Officers and Corporate Governance98Item 11.Executive Compensation98Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters98Item 13.Certain Relationships and Related Transactions, and Director Independence98Item 14.Principal Accounting Fees and Services99PART IVItem 15.Exhibits, Financial Statement Schedules100Item 16.Form 10-K Summary100 Signatures1012 PART ISPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risks and uncertainties. Insome 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 limitedto, statements regarding future financial and operational performance; statements concerning growth strategies including extension of distributionchannels and strategic relationships, product innovation, international expansion, customer growth and expansion, expectations for hiring newtalent and expanding our sales organization; our ability to accurately forecast revenue and appropriately plan expenses and investments; thedemand for and benefits from the use of our current and future solutions; market acceptance of our solutions; and changes in the competitiveenvironment in our industry and the markets in which we operate. These statements are based upon our historical performance and our currentplans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. Forward-lookingstatements are based on information available at the time those statements are made and/or management’s good faith beliefs and assumptions asof that time with respect to future events, and are subject to risks and uncertainties. If any of these risks or uncertainties materialize or if anyassumptions prove incorrect, actual performance or results may differ materially from those expressed in or suggested by the forward lookingstatements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, andassumptions that are difficult to predict, including those identified below, under Item 1A. “Risk Factors” and elsewhere herein. Forward-lookingstatements 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 Annual Report on Form 10-Krefer to the consolidated operations of BlackLine, Inc. and its consolidated subsidiaries as a whole, references to “Silver Lake Sumeru” refers toeither 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 allof Iconiq Strategic Partners, L.P., ICONIQ Strategic Partners-B, L.P. and Iconiq Strategic Partners Co-Invest, L.P., BL Series. We refer to SilverLake Sumeru, Iconiq, Therese Tucker and Mario Spanicciati collectively as our Principal Stockholders. Item 1.BusinessOverviewWe have created a comprehensive cloud-based software platform designed to transform and modernize accounting and finance operationsfor organizations of all types and sizes. Our secure, scalable platform supports critical accounting processes such as the financial close, accountreconciliation, intercompany accounting, and controls assurance. By introducing software to automate these processes and to enable them tofunction continuously, we empower our customers to improve the integrity of their financial reporting, achieve efficiencies and enhance real-timevisibility into their operations.Critical accounting and finance processes underlie the integrity of an organization’s financial reports. The lack of effective accounting andfinance tools can result in inefficient and cumbersome processes and, in some cases, accounting errors, restatements and write-offs, as well asmaterial weaknesses and significant deficiencies. Traditional enterprise resource planning, or ERP, systems do not generally provide effectivesolutions for processes handled outside of an organization’s general ledger, such as balance sheet account reconciliation, intercompanytransaction accounting and the broader financial close process. Many organizations also use multiple ERPs and other financial systems without aplatform to efficiently integrate them. As a result, to manage these tasks, organizations rely on spreadsheets and other error-prone and labor-intensive processes that are unsuited for the increasing regulatory complexity and transaction volumes encountered by many modernbusinesses. We believe that we are creating a new category of powerful cloud-based software that is capable of automating and streamliningaccounting and finance operations, in a manner that complements and supports traditional ERP systems. We believe our customers benefit fromcost savings through improvements in process management and staff productivity, in addition to managing a faster financial close.3 Our mission is to transform how accounting and finance departments operate. Our approach modernizes what historically has been donethrough batch processing and manual controls typically applied only during the month, quarter or year-end financial close, and delivers dynamicworkflows embedded within a real-time, highly automated framework, a process we refer to as “continuous accounting.” It also enables up-to-dateanalytics, provides industry-benchmarked metrics and is designed to help customers run more efficiently while achieving greater accuracy, controland transparency. We believe the need for our software has been driven by growing business and information technology complexities,transaction volumes and expanding regulatory requirements. Our software integrates with, and obtains data from, more than 30 different ERPsystems, including NetSuite, Oracle, SAP, and Workday, as well as many other financial systems and applications such as bank accounts, sub-ledgers and in-house databases.We believe that we have a leading position in the enhanced financial controls and automation market because we were one of the firstcompanies to bring software with this functionality to market and we have a limited number of competitors. The May 2016 Gartner Report, “MagicQuadrant for Financial Corporate Performance Management Solutions,” or the “Gartner Report,” identified us as a Leader in the newly-createdMagic Quadrant for Financial Corporate Performance Management Solutions for our completeness of vision and ability to execute. According to astudy we commissioned with Frost & Sullivan, in 2015 there were more than 46,000 corporate organizations in North America and more than165,000 worldwide that are in our addressable market with revenues greater than $50 million. According to Frost & Sullivan, these companiesemploy over 13 million accounting and finance personnel, with over 5.5 million in North America alone, all of whom could be potential users of oursoftware platform. Based on its assessment of the number of corporate organizations, accounting and finance personnel globally and certainassumptions regarding pricing of our products, Frost & Sullivan estimates that our total addressable market in 2015 was $7.2 billion in NorthAmerica and $9.4 billion in Europe, Asia Pacific and Latin America, and is expected to grow to a global total addressable market of $19.7 billion by2018.We sell our software solutions primarily through our direct sales force, which leverages our relationships with technology vendors,professional services firms and business process outsourcers, to expand our sales process and market reach. Our distribution strategy is basedon a “land-and-expand” model and is designed to capitalize on the ease of use and implementation. Our customers include large public and privateorganizations and small and medium-size businesses across a variety of industries, including healthcare, technology, telecommunications,financial services, consumer retail, and industrial equipment and services. As of December 31, 2016, we had more than 1,700 customers withover 166,000 users in over 130 countries exclusive of the Runbook Acquisition. Additionally, we continue to build strategic relationships withtechnology vendors, professional services firms, business process outsourcers, and resellers.We are a holding company and conduct our operations through our wholly-owned subsidiary, BlackLine Systems, Inc. BlackLine Systems,Inc. funded its business with investments from Therese Tucker, our founder and Chief Executive Officer, and cash flows from operations untilSeptember 3, 2013, when we acquired BlackLine Systems, Inc. and Silver Lake Sumeru and Iconiq acquired a controlling interest in us, which werefer to as the “2013 Acquisition.” We refer to Silver Lake Sumeru and Iconiq collectively as our “Investors.” The 2013 Acquisition was accountedfor as a business combination under accounting principles generally accepted in the United States of America, or GAAP, and resulted in a changein accounting basis as of the date of the 2013 Acquisition.On August 31, 2016, we acquired Runbook Company B.V., a Netherlands-based provider of licensed financial close automation softwareand integration for SAP customers, or Runbook, which we refer to as the “Runbook Acquisition.” The primary purpose of the Runbook Acquisitionwas to enhance our position as a leading provider of software solutions to automate the financial close process for SAP customers andsecondarily it supports our European expansion strategy.We have experienced significant revenue growth and adoption of our platform in recent periods. For the years ended December 31, 2016and 2015, we had revenues of $123.1 million and $83.6 million, respectively, and we incurred net losses of $39.2 million and $24.7 million,respectively. See “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition andResults of Operations” for a discussion of our financial performance.4 Industry BackgroundAccounting is a Universal Mission-Critical FunctionOrganizations need reliable financial information to plan and execute business initiatives, measure operational progress and satisfyregulatory and financial obligations. For each period-end, enterprise accounting functions typically record, process, reconcile, consolidate, andreport financial transactions that are consolidated into useable financial information. These activities typically support other core businessfunctions such as payroll, treasury, procure-to-pay, and order-to-cash processes. Traditionally, many accounting processes, such as balancesheet account reconciliation, intercompany transaction accounting and the broader financial close calendar, are managed and tracked withspreadsheets that are manually reconciled on a periodic basis, and which are often labor-intensive, inefficient and error-prone. The risks ofemploying traditional methods include lapses in regulatory compliance, damage to brand and public image, and negative impacts on financialhealth and transparency.Modern Business is Increasingly ComplexOrganizations of all sizes are operating in an increasingly global, complex and fast-moving business environment that presents significantchallenges to the performance of the accounting and finance functions. Accountants must process and verify transactions that occur both withinand across international borders, involve multiple currencies and require compliance with varying legal, regulatory and tax frameworks. Thistransactional complexity is exacerbated by other factors typical of global business, such as distance, language barriers and differing timezones. In addition, modern enterprises generate massive amounts of transaction data. It is common for organizations to have thousands ofdifferent accounts—potentially comprising billions of records—and to use numerous different financial and operational systems to store thatdata. Furthermore, companies employ increasingly sophisticated corporate structures that often require accountants to reconcile accounts acrossvarious business units and geographies. We believe that the complexity of modern corporate structures and transactions, combined with mountingtransaction volumes and a fragmented information technology landscape, creates a significant need for increased automation, efficiency andvisibility in accounting and finance.The Risk of Regulatory Non-Compliance is SignificantPublic accounting follows a variety of rules and standards for the processing, recognition and reporting of transactions. These standards,such as generally accepted accounting principles, or GAAP, and International Financial Reporting Standards, or IFRS, are highly specific, applydifferently across industries and geographies and, in some cases, provide conflicting guidance. More specific frameworks such as the Sarbanes-Oxley Act of 2002 govern internal controls, disclosure management and audit conduct. Some highly-regulated industries, including financialservices, gaming and insurance, have additional specific regulatory requirements. In addition, accounting standards periodically change, such asthe revenue recognition accounting standard issued by the Financial Accounting Standards Board, or the FASB in 2014, which must be adopted bypublic companies by next year and will require an overhaul of many public accounting systems and practices. The resulting tangle of stringent,changing and sometimes conflicting regulations typically requires that organizations maintain more than one set of records, invest heavily inimplementing and monitoring internal controls, and undergo expensive and time-consuming audits.Incorrect financial information can have severe repercussions. A single restatement can cost millions of dollars in forensic accounting andaudit fees, lead to significant remediation expenses, generate investor lawsuits, and seriously damage an enterprise’s reputation. A materialweakness can also trigger noncompliance with debt covenants and damage an organization’s credit-worthiness. The Securities and ExchangeCommission, or SEC, has also proposed new rules that will require companies to “claw back” incentive-based executive compensation as a resultof an accounting restatement. According to the Center for Audit Quality, from 2003 to 2012, 10,479 accounting restatements were reported by SECreporting companies, including 4,246 restatements requiring reissuance of the affected financial statements, and there was a demonstratednegative near-term effect on the public market price of securities of many companies making such restatements.5 Companies Lack Real-Time, Actionable Data from Their Accounting DepartmentsAs complexity, transaction volume and regulatory scrutiny increase, management teams often find themselves without clear and immediateinsight into their accounting and finance processes and results. In most cases, the accounting department’s work is done within desktopapplications or with the use of spreadsheets, leaving management with an incomplete view of their progress in closing, consolidating and reportingeach period. By the time data is manually compiled, it is often days or weeks out-of-date, limiting the ability to effectively track and analyzefluctuations and trends, detailed metrics on individual and team performance, and transaction risk profiles in a timely manner.Such lack of visibility limits the ability of accounting managers to influence ongoing accounting operations. Instead, they are often relegatedto conducting quality control measures after a process is completed. Important decisions may be made by less experienced employees and costlyerrors, such as unreconciled balances or unapproved fund transfers, may go undetected. In addition, the discipline of accounting frequently lacksestablished metrics by which to gauge performance.Accounting Professionals Face Compressed Deadlines and a Heightened Expectation of AccuracyMany organizations, and public companies in particular, have adopted a practice of reporting financial information by a fixed date followingtheir quarter close. Given limited resources, an accelerated timetable can put immense pressure on a company’s accounting function. Accountingprofessionals are expected not only to address business and regulatory challenges but also to achieve completeness and accuracy of operatingresults to ensure financial integrity. Given these challenges and deadlines, accountants are often forced to leave certain accounts andtransactions unreconciled, which can dramatically increase risk and create situations of concern for controllers, chief financial officers and auditcommittee members.Traditional Accounting Processes and Tools are InefficientThe processes and software solutions traditionally employed by accountants, such as general ledgers and ERP systems, do not provideeffective solutions for critical, non-general ledger accounting and finance processes such as balance sheet account reconciliation, intercompanytransaction accounting and the overall management of the entire financial close process. Most core accounting and finance systems are designedas batch transaction repositories without the ability to consume and process continuous streams of data. In addition, most organizations usemultiple ERPs and many other financial systems across their IT environments. Traditionally available accounting tools are inflexible, expensive toconfigure and maintain, and do not scale easily. As a result, we are addressing a clear need for new scalable accounting and finance tools thatcan consume data from a variety of sources, process it quickly with embedded business logic, provide a collaborative workspace for accountants,and then store information within a data warehouse or ERP system. Furthermore, accounting processes themselves have not evolved over timeand instead remain focused on producing financial information only after period-end, ignoring the growing demand for a more streamlined,continuous approach to accounting.The BlackLine SolutionWe provide a powerful cloud-based software platform designed to automate and streamline accounting and finance operations. The keyelements of our solutions include:Comprehensive PlatformWe offer an integrated suite of applications that delivers a broad range of capabilities that would otherwise require the purchase and use ofmultiple products to support critical accounting processes such as the financial close, account reconciliations, intercompany accounting, andcontrols assurance. Our platform consists of seven core cloud-based products, including Account Reconciliation, Task Management, TransactionMatching, Journal Entry, Variance Analysis, Consolidation Integrity Manager, and Daily Reconciliation. Customers typically purchase theseproducts in packages that we refer to as solutions, but they have the option to purchase these products individually. Current solutions include ourReconciliation Management and Financial Close Management, Intercompany Hub, and Insights. The technology underpinning our platform includesa comprehensive base of accounting-specific business logic and rules engines, which enable our customers to implement continuous accounting.6 Enterprise IntegrationOur platform provides simple, secure and automated tools and integrations to transfer data to and from a range of enterprise-wide processesand systems, including ERPs, financial systems and in-house databases, and other custom applications and data. Our platform integrates withover 30 ERP systems, including NetSuite, Oracle, SAP, and Workday. In addition, for companies with multiple systems and complex needs, wecan connect with any number of general ledger systems simultaneously, resolving many of the issues associated with consolidating data acrosssystems.IndependenceOur platform is not dependent on any single operating system and works with most major ERP systems our customers may use. Our cross-system functionality allows us to reach a broader group of customers. We are also able to focus on and innovate for the needs of the customersirrespective of updates or changes in their existing systems. We believe this independence provides us with a competitive advantage in theindustry over traditional methods.Ease of UseOur platform is designed by accountants, for accountants, to be intuitive and easy to use. We strive to enable any user to rapidly implementour platform to manage their accounting and finance activities, from the simplest to the most sophisticated tasks. Our user-friendly interfaceprovides clear visualization of accounting and finance data, enables user collaboration and streamlines business processes.InnovationOur ability to develop innovative products has been a key driver of our success and organic growth. Through a history and culture of thoughtleadership, we have created a new category of powerful software that automates and streamlines antiquated, manual accounting processes tobetter meet our clients’ diverse and rapidly changing needs, and we continue to focus on providing advanced solutions to time and labor intensiveaccounting practices. Examples of recent innovations include the launches of our Intercompany Hub solution, which is designed to manage allintercompany transactions through one centralized, cloud-based system, and the launch of our Insights solution, which provides real-timeperformance measures and a benchmarking dashboard.SecurityThe robust security features embedded in our platform are designed to meet or exceed both industry standards and the stringent securityrequirements of our customers. We engage independent security auditors to assess the effectiveness of our comprehensive information securityprogram consisting of risk-driven policies and procedures.Key BenefitsOur platform is designed to provide the following benefits to our customers:Flexibility and scalabilityOur unified cloud platform is designed for modern business environments and has broad applicability across large and small organizations inalmost any industry. The platform supports complex corporate structures, provides integration across all core financial systems, manages multiplecurrencies and languages, and scales to support high transaction volumes.Embedded controls and workflowOur platform was designed for the complex global regulatory environment. Our platform embeds key controls within standardized, repeatableand well-documented workflows, which are designed to result in substantially reduced risk of non-compliance or negative audit findings, greatertolerance for regulatory complexity and increased confidence in financial reports.7 Real-time visibilityWe provide users with real-time visibility into the status, progress and quality of their accounting processes. With configurable dashboards,user-defined reporting and the ability to drill down to individual reconciliations, journals and tasks, users can track open items, identify bottleneckswithin a process or intervene to prevent mistakes.Automation and efficiencyOur platform can ingest data from a variety of sources, including ERP systems and other data repositories, and apply powerful, rules-drivenautomation to reconciliations, journals and transactions. This streamlines accounting processes, minimizes manual data entry and improvesindividual productivity to help ensure that accounting processes are completed on time. As a result, this automation allows users to focus onvalue-added activities instead of process management.Continuous processingOur platform helps organizations embed quality control, compliance and financial integrity into their day-to-day processes rather than rely onthe traditional process of validating financial information at the end of each period. Activities such as account reconciliation and variance analysiscan be performed in real-time, thus reducing the risk of errors and creating a more agile accounting environment.Our Growth StrategyWe intend to continue investing in a number of growth initiatives to provide our customers with advanced solutions and to address andexpand our market opportunity. Our principal growth strategies include the following:Continue to Innovate and Expand Our PlatformOur ability to develop new, market-leading applications and functionalities is integral to our success. We intend to continue extending thefunctionality and range of our applications to bring new and improved solutions to accounting and finance. Examples of recent innovations includethe launch of our Intercompany Hub solution, which is designed to manage all intercompany transactions through one centralized, cloud-basedsystem and the launch of our Insights solution, which provides real-time performance measures and a benchmarking dashboard.Enhance Our Leadership Position in the Enterprise Market and Mid-Market Customer BaseWe believe we have a leading position in the enhanced financial controls and automation market with both enterprise market and mid-marketcustomers, and we were recognized as a Leader by the Gartner Report in the newly-created Magic Quadrant for Financial Corporate PerformanceManagement Solutions for our completeness of vision and ability to execute. We had more than 1,700 customers across a variety of industriesand geographies as of December 31, 2016 exclusive of the Runbook Acquisition. Our customers include some of the largest multi-nationalenterprises, as well as leading medium and small businesses around the world. We intend to leverage our brand, history of innovation andcustomer focus to maintain and grow our leadership position with enterprise market customers. We believe that mid-market businesses areparticularly underserved and that our platform can help these businesses modernize their accounting and finance processes efficiently andeffectively. We have made recent investments to grow our mid-market sales team and plan to continue leveraging our network of resellers to growour mid-market business globally.Increase Customer Spend through Expanded Usage and Adoption of Additional ProductsWe believe there is a significant opportunity to increase sales of our products within our existing customer base. We pursue a land-and-expand sales model to increase the use of our platform by selling additional solutions and features and increasing the number of users within ourcustomers’ organizations. Our pricing model is designed to allow us to capture additional revenue as our customers’ usage of our platform grows,providing us with an opportunity to increase the lifetime value of our customer relationships.8 Expand Our International Operations and Customer FootprintWe believe that we have a significant opportunity to expand the use of our cloud-based products outside the United States. We derivedapproximately 16% and 14% of our revenues from sales outside the United States in the years ended December 31, 2016 and 2015, respectively,and we believe there are substantial opportunities to increase sales to customers outside of the U.S. In August 2016, we acquired Runbookprimarily to enhance our position as a leading provider of software solutions to automate the financial close process for SAP customers andsecondarily it supports our European expansion strategy. We currently have users in over 130 countries, and our platform supports applicableinternational accounting standards, as well as 16 languages and all currencies specified by the International Organization for Standardization, orISO currencies. We have an established presence in Australia, Canada, England, France, Germany, Netherlands, and Singapore, and we intendto invest in further expanding our footprint in these and other regions.Extend Our Customer Relationships and Distribution ChannelsWe have established strong relationships with key industry participants to supplement marketing and delivery of our applications. Theserelationships include agreements with technology vendors such as SAP and NetSuite, professional services firms such as Deloitte and KPMG,and business process outsourcers, or BPOs, such as Cognizant, Genpact and IBM.These relationships enable us to effectively market our solutions by offering a complementary suite of services to our customers. Inparticular, we offer our customers an integrated SAP-endorsed business solution through our relationship with SAP. We intend to continue tostrengthen and expand our existing relationships, seek new relationships and further expand our distribution channels to help us expand into newmarkets and increase our presence in existing markets.CustomersOur customers include multinational corporations, large domestic enterprises and mid-market companies across a broad array of industries.These businesses include publicly-listed entities and privately-owned enterprises, as well as non-profit entities. As of December 31, 2016, we hadover 166,000 individual users in over 130 countries across more than 1,700 customers exclusive of the Runbook Acquisition. We define acustomer as an entity with an active subscription agreement as of the measurement date. In situations where an organization has multiplesubsidiaries or divisions, each entity that is invoiced as a separate entity is treated as a separate customer. However, where an existing customerrequests its invoice be divided for the sole purpose of restructuring its internal billing arrangement without any incremental increase in revenue,such customer continues to be treated as a single customer. For the years ended December 31, 2016, 2015 and 2014, sales to enterprisecustomers represented 85%, 86% and 90% of our revenues, respectively, while sales to mid-market customers represented 15%, 14% and 10%of our revenues, respectively.Our customers operate in complex, diverse and often global information technology ecosystems with numerous general ledgers, sub-ledgers, treasury systems, and ERP systems from different vendors, including NetSuite, Oracle, SAP, and Workday. Our platform is designed forand used by employees across the organization, including end users such as internal accounting employees, controllers and chief accountingofficers, as well as chief financial officers and other senior executives and external auditors.We believe our customers benefit from improvements in process management and staff productivity, in addition to a faster financial close.Cost savings are achieved from the reconciliations of accounts, across approval and review roles, in process administration, and in audit, storageand paper expenses.9 The following is a sample of our current customers across some of the industries we serve. The customers below vary in size of theirrespective business and the amount of revenue we derive from them. Consumer/Retail Healthcare Financial Services Costco Wholesale CorporationKraft Heinz Foods CompanyMondelezThe Coca-Cola CompanyUnder Armour Alliance Healthcare ServicesAmerican Dental Partners, Inc.Brooks RehabilitationDaVita HealthCare Partners Inc.Shire PharmaceuticalsZeltiq Aesthetic CSAA Insurance ExchangeRussell Investment GroupRSA Insurance Group plcSunTrust BankXoom Corporation Technology Industrial/Energy Services Adaptive InsightsAutodeskGoDaddy.comRackspaceZendesk, Inc. British Gas Trading LimitedGreif Inc.Hubbell IncorporatedKimberly-Clark Global Sales, LLC Brink’s CompanyKempinski HotelsOrange Lake ResortsSiriusXM Radio Inc.Products and ServicesOur platform consists of seven core cloud-based products, including Transaction Matching, Account Reconciliations, Consolidation IntegrityManager, Journal Entry, Variance Analysis, Task Management, and Daily Reconciliations. Customers typically purchase these in packages thatwe refer to as solutions, but they have the option to purchase these products individually. Current solutions include our ReconciliationManagement, Financial Close Management, Intercompany Hub, and Insights.10 Reconciliation ManagementThe process of verifying and validating transactions, balances and consolidated financial results is referred to as account reconciliation. OurReconciliation Management solution provides a framework for the reconciliation process, allowing users to build integrity checks and automationinto the entire end-to-end work flow. The solution includes: •Account Reconciliations provides a centralized workspace from which users can collaborate to complete account reconciliations.Features include standardized templates, workflows for review and approval, linkage to policies and procedures, and integratedstorage of supporting documentation. The product automates otherwise manual activities in the reconciliation process, significantlyreducing time and effort and increasing productivity. It also enhances internal controls by facilitating the appropriate segregation ofduties, simplifying reconciliation audits and adding transparency and visibility to the reconciliation process. •Transaction Matching analyzes and reconciles high volumes of individual transactions from different sources of data based uponuser-configured logic. Our rules engine automatically identifies exceptions, errors, missing data, and variances within massive datasets. The matching engine processes millions of records per minute, can be used with any type of data and allows customers toreconcile transactions in real-time. •Consolidation Integrity Manager manages the automated system-to-system tie-out process that occurs during the consolidationphase of the financial close. Companies with multiple ERPs utilize a consolidation system to produce their consolidated financialresults. Because these systems contain and produce information that changes continually and requires constant adjustments, a finaltie-out that is typically handled manually in a spreadsheet is necessary prior to publishing results. This product automates the tie-outprocess, aggregating balances from dozens or hundreds of different systems and allowing users to identify exceptions and createadjustments quickly. •Daily Reconciliations narrows the scope of a reconciliation to a single day’s transactions or balance detail. Users can then performtheir analysis in minutes per day, rather than attempting to review an entire month’s worth of activity in a limited time during theperiod-end close. Some industries, such as banking, require that organizations track the creation and certification of dailyreconciliations. Daily reconciliations are a prime example of continuous accounting in action.Financial Close ManagementThe collection of processes by which organizations reconcile, consolidate and report on their financial information at the end of each periodis referred to as the financial close. Our Financial Close Management solution allows customers to manage the key steps within the close,applying automation where possible, and ensure that tasks are properly completed and reviewed. This solution includes the components of theReconciliation Management solution, as well as the following products: •Task Management enables users to create and manage processes and task lists. The product provides automatic and recurring taskscheduling, includes configurable workflow and provides a management console for accounting and finance projects. Though mostcommonly used with the financial close, users can create task lists and projects for hundreds of different use cases ranging fromexternal audits to environmental impact surveys. •Journal Entry allows users to manually or automatically generate, review and post manual journal entries. Journals can beautomatically allocated across multiple business units and calculated based on complex, client-defined logic. More importantly, theaddition of validation and approval checkpoints helps ensure the integrity of information passed to other financial applications.Customers can use the Journal Entry product to pass information to hundreds of different ERPs and subsystems in a configurable,easily consumable format. •Variance Analysis provides “always-on” monitoring and automatically identifies anomalous fluctuations in balance sheet and incomestatement account balances. Once an account in flux is identified, users are automatically alerted so they can research anddetermine the source of the fluctuation.11 Intercompany HubIntercompany transactions occur when entities within a corporate parent organization transact with each other. These transactions are someof the most complex and frequent sources of uncertainty for the accounting function. Our Intercompany Hub solution, which was made generallyavailable in November 2015, manages the entire intercompany transaction lifecycle within our platform and we believe it is the only widelyavailable end-to-end intercompany solution. This solution includes the following features: •Intercompany Workflow replaces informal, ad-hoc intercompany requests and approvals with a simple, structured workflow approvalprocess. The application stores permissions by entity and transaction type, ensuring that both the initiator and the approver of theintercompany transaction are authorized to conduct business. •Intercompany Processing records an organization’s intercompany transactions once they reach an appropriate completion level andposts them to the appropriate systems from a single source. The product automatically incorporates local taxes, exchange rates,invoicing requirements, and customer-specific transfer pricing so that the resulting journal entries will net, which reduces thepossibility of intercompany differences and eliminates the need to perform a manual reconciliation. •Netting and Settlement automatically generate a real-time, aggregated settlement matrix, which shows the balance of transactionsacross an entire organization. Users can filter the information by transaction type, currency or business relationship, easing theprocess of netting transactions and helping them make informed, strategic decisions.InsightsOur platform provides us with detailed information about the accounting and finance function for most of our cloud-based customers.Insights, which was made generally available in November 2015, aggregates and analyzes that information and can help clients assessproductivity, risk and timeliness. We also provide a series of key performance indicators and allow clients to compare metrics across their ownoperating entities, set goals and gauge their performance over time. Insights provides benchmarking, scores for a variety of industries, companysizes, and geographies. These benchmarks are drawn from actual client usage of the application, rather than survey data, which provides valuablecontext for users.ServicesCustomer service is essential to our success. We offer the following services for our customers: •Implementation. With a focus on configuration over customization, our implementation approach favors rapid and efficientdeployments led by accounting experts, rather than technical resources. A typical project will focus on mapping our application to acustomer’s current or ideal process, coaching them on best practices, and helping organizations become self-sufficient, instead ofdependent on additional professional services. For clients that elect to work with a business process outsourcer or other company forimplementation services, our implementation team provides ongoing support in order to ensure that the implementation or financetransformation projects are completed successfully. We generally provide this service for a fixed fee. •Support. We provide live customer support 24/7/365 from our offices in Los Angeles, Sydney and London. All customers haveaccess to support resources by phone, email or through our portal, free of charge. •Customer Success. Our customer success managers, many of whom are former users, provide customers with best practices andhelp create a roadmap for expanded usage of our platform. We believe that this service, which is made available to all customers, iscentral to our retention and upsell efforts. •Training. We offer a variety of live and web-based training options, but most customers elect to consume their training through our e-learning environment, BlackLine U. Courses cover platform functionality, as well as the underlying concepts that make reconciliation,the financial close and other accounting and finance activities necessary.12 Sales and MarketingWe sell our solutions through our direct sales force. Our enterprise field sales team focuses on selling our solutions to large, globalenterprises with annual revenues above $500 million. Our mid-market sales team focuses on selling our solutions to mid-market businesses withannual revenues between $50 million and $500 million. We also have an account management team dedicated to our existing customer base thatgenerates sales by focusing on contract renewals, expanding the current number of users within an organization and up-selling additional products.Our direct sales force leverages our relationships with technology vendors such as SAP and NetSuite, professional services firms such asDeloitte and KPMG and business process outsourcers such as Cognizant, Genpact and IBM, to influence and drive customer growth. In particular,we offer our customers an integrated SAP-endorsed business solution in connection with our relationship with SAP. We also utilize a resellerchannel that includes software vendors throughout the world and offer training in our solutions so that our reach is further extended.Our marketing efforts are focused on creating sales leads, establishing and extending our brand proposition, generating product awareness,and cultivating our community of users. We generate sales leads primarily through word-of-mouth, search engine marketing, outbound leadgeneration, and our network of business process outsourcers, business services organizations and resellers. We leverage online and offlinemarketing channels on a global basis and organize customer roundtables and user conferences and release white papers, case studies, blogs, anddigital programs and seminars. We have further extended our brand awareness through sponsorships with leading industry organizations such asthe American Institute of Certified Public Accountants, or AICPA, the Institute of Management Accountants, or IMA, the Financial ExecutivesInternational, or FEI, the Institute of Chartered Accountants in England and Wales, or ICAEW, and the Association of Chartered CertifiedAccountants, or ACCA.Technology, Operations and DevelopmentTechnologyOur platform has been designed to deliver a consistent, scalable, high-performing, and secure experience for our customers. Our platform isenabled by rules engines, flexible templates, role-based workflows, and accounting-specific business logic. We deliver our hosted solution on asingle code base and via a multi-tenant architecture with unique database instances for each customer. All SaaS customers run the currentversion of our platform and access it through a web browser. We utilize industry-leading hardware and software components to deliver on thefollowing objectives: •Scalability and Performance. Our platform supports a high, sustained level of client activity and a large, globally distributed clientbase while remaining high-performing and reliable. Our infrastructure incorporates load balancing technology and can scale quickly toabsorb spikes in usage. We also monitor application performance and intervene, as necessary, to prevent degradation. Finally, ourplatform incorporates technologies to manage volume within the solutions. These include a near real-time data warehouse, a high-volume transaction processing engine and a custom-built user interface. •Reliability. During 2016, we had no unscheduled downtime and 99.92% total availability, including scheduled maintenance. Clientdata is mirrored between primary and alternate data centers, providing effective redundancy and disaster recovery. •Flexibility. Our application architecture is modular, which allows us to quickly release new products or expand existing feature-sets by combining and configuring existing components. Our development has always been both rapid and responsive, which allowsus to support a wide array of clients and bring new products to market while maintaining a consistent user interface and single,cohesive code base.SecurityDue to the sensitive nature of the data we store for our clients, we place a heavy emphasis on security. Our infrastructure and softwareproducts are designed to meet and exceed rigorous security standards and to assure customers that we are taking appropriate measure to protecttheir data.We maintain a comprehensive information security management system that extends companywide and integrates into our core technologyand business processes. This system includes deployment of a variety of detective, preventive and deterrent controls that include technical andadministrative safeguards. The controls are regularly tested, both internally and by third-party audits and penetration tests. We are certified forcompliance with the ISO 27001 framework,13 and we regularly undergo SSAE16, ISAE 3402 and SOC audits. We believe that we are in compliance with regulatory requirements and that weemploy security best practices. A dedicated team of security professionals orchestrate our information security program. Our information securitycontrols and practices include strong encryption for data at rest and in transit and extensive monitoring with comprehensive security incidentdetection and response process.OperationsWe host our platform and solutions for our customers in data centers located in North America (Culpeper, Virginia and Las Vegas, Nevada)and Europe (Amsterdam, Netherlands and London, United Kingdom). We contract with Verizon (Virginia and Netherlands), SuperNap (Nevada) andVMware (UK) for use of these data center facilities. These facilities provide extensive physical security, including manned security 365 days ayear, 24 hours a day, seven days a week, with video surveillance, redundant power and environmental controls, and technical controls, includingbiometric access. Network equipment, servers and applications are managed by our employees, and we staff a network operations center, orNOC, to monitor performance 365 days a year, 24 hours a day. We regularly conduct risk and security assessments of these facilities and reviewtheir SSAE16, SOC and/or ISO 27001 attestations and certifications to ensure that our datacenter providers have adequate controls to maintainavailability and security of our services.DevelopmentOur research and development organization focuses on developing new software solutions and enhancing existing products, conductingsoftware and quality assurance testing and improving our core technology. Our research and development organization is located primarily in ourLos Angeles, California headquarters, where we are committed to recruiting, hiring and retaining top technical talent. We invest substantialresources in research and development to drive core technology innovation and to bring new products to market.Our research and development expenses were $21.1 million, $18.2 million and $9.7 million for the years ended December 31, 2016, 2015and 2014, respectively. Our research and development expenses as a percentage of revenue were 17.2%, 21.8% and 18.8% for the years endedDecember 31, 2016, 2015 and 2014, respectively.CompetitionThe market for accounting and financial software and services is competitive, rapidly evolving and requires deep understanding of theindustry standards, accounting rules and global financial regulations.We compete with vendors of financial automation software such as Trintech, and we also compete with components of Oracle’s Hyperionsoftware.We believe the principal competitive factors in our market include the following: •level of customer satisfaction; •ease of deployment and use of applications; •ability to integrate with multiple legacy enterprise infrastructures and third-party applications; •domain expertise on accounting best practices; •ability to innovate and respond to customer needs rapidly; •capability for configurability, integration and scalability of applications; •cloud-based delivery model; •advanced security and reliability features; •brand recognition and historical operating performance; and •price and total cost of ownership.We believe we are positioned favorably against our competitors based on these factors. However, certain of our competitors may havegreater name recognition, longer operating histories, more established customer and marketing relationships, larger marketing budgets, andsignificantly greater resources.14 Intellectual Property and Proprietary RightsOur intellectual property and proprietary rights are important to our business. We currently have one pending patent application. We primarilyrely on copyright, trade secret and trademark laws, trade secret protection, and confidentiality or license agreements with our employees,customers, partners, and others to protect our intellectual property rights. Though we rely in part upon these legal and contractual protections, webelieve that factors such as the skills and ingenuity of our employees and the functionality and frequent enhancements to our solutions are largercontributors to our success in the marketplace.Despite our efforts to preserve and protect our intellectual property and proprietary rights, unauthorized third parties may attempt to copy,reverse engineer or otherwise obtain portions of our software. Competitors may attempt to develop similar products that could compete in thesame market as our products. Unauthorized disclosure of our confidential information by our employees or third parties could occur. Laws of otherjurisdictions may not protect our intellectual property and proprietary rights from unauthorized use or disclosure in the same manner as the UnitedStates. The risk of unauthorized use of our proprietary and intellectual property rights may increase as our company continues to expand outsideof the United States.Third-party infringement claims are also possible in our industry, especially as software functionality and features expand, evolve andoverlap with other industry segments.Information about Segment and Geographic RevenueInformation about segment and geographic revenue is set forth in Notes 2 and 15 of the “Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements” under Part II, Item 8 of this Annual Report on Form 10-K.Employees and CultureWe believe our employees and culture are fundamental to our success. Therese Tucker, our founder and Chief Executive Officer, has ledour company since its inception in 2001 and has built and maintained a culture committed to empowering our employees and communities aroundus. Our motto “Think. Create. Serve.” expresses our core values as a company dedicated to innovation and creativity, collaboration and action andservice to each other and our customers.We seek to hire talented employees and are focused on their long-term development and training. We work to foster a collaborative,performance-driven working environment where integrity, open and honest communication and accountability are embraced and cultivated. Bymixing these important features with an element of fun, we seek to maintain a satisfying workplace for our employees. We are proud of ourrecognition as a best place to work in the Los Angeles area in 2013, 2014, 2015, and 2016.Many of our employees have previously worked for our customers. We believe this uniquely positions us to build compelling and effectiveproducts while also enhancing the user experience for our customers. Our desire to build a platform that creates value for all stakeholders in theaccounting and financial process informs our decisions regarding product design and development.We also believe in making a positive impact on our communities. Each year during our annual Users Conference, we join with ourcustomers to perform a day of community service — in 2016, through a joint event with LA Mission, our employees, interested clients and partnersvolunteered their time to distribute food to local needy residents. In 2014 and 2015, through joint events with Windy City Habitat for Humanity andAtlanta-based Habitat for Humanity, we helped to rebuild homes in the cities of Chicago and Atlanta.As of December 31, 2016, we employed 597 people globally. None of our employees are represented by a labor union or covered by acollective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.15 Corporate InformationWe were incorporated in Delaware in May 2001. Our principal executive offices are located at 21300 Victory Blvd., 12th Floor, WoodlandHills, California 91367, and our telephone number is (818) 223-9008. On September 3, 2013, we acquired BlackLine Systems, Inc., an S-Corporation, and Silver Lake Sumeru and Iconiq acquired a controlling interest in us, which we refer to as the “2013 Acquisition”. We completedour initial public offering in November 2016, and our common stock is listed on the NASDAQ Global Select Market under the symbol “BL.”The names “BlackLine,” “BlackLine Systems,” “Intercompany Hub,” and our logo are our trademarks. This Annual Report on Form 10-K alsocontains trademarks and trade names of other businesses that are the property of their respective holders. We have omitted the ® and ™designations, as applicable, for the trademarks we name in this Annual Report on Form 10-K.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, we have elected tocomply with certain reduced public company reporting requirements. We will remain an “emerging growth company” until the earliest of (i) the lastday of the fiscal year following the fifth anniversary of the completion of our initial public offering, (ii) the last day of the first fiscal year in which ourannual gross revenue is $1 billion or more, (iii) the date on which we have, during the previous rolling three-year period, issued more than $1 billionin non-convertible debt securities or (iv) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act. We referto the Jumpstart Our Business Startups Act of 2012 herein as the “JOBS Act,” and references herein to “emerging growth company” are intendedto have the meaning associated with it in the JOBS Act.Available InformationOur website is located at www.blackline.com, and our investor relations website is located at http://investors.blackline.com/. We have used,and intend to continue to use, our Investor Relations website as a means of disclosing material non-public information and for complying with ourdisclosure obligations under Regulation FD. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports onForm 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, asamended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file suchmaterial electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a website that containsour SEC filings. The address of the site is www.sec.gov. Further, a copy of this Annual Report on Form 10-K is located at the SEC’s PublicReference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained bycalling the SEC at 1-800-SEC-0330.Item 1A.Risk FactorsInvesting in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below,together with all of the other information in this Annual Report on Form 10-K, including “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our financial statements and related notes, before making a decision to invest in our common stock. Therisks and uncertainties described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that wepresently deem less significant may also impair our business operations. If any of the events or circumstances described in the following riskfactors actually occurs, our business, operating results, financial condition, cash flows, and prospects could be materially and adverselyaffected. In that event, the market price of our common stock could decline, and you could lose part or all of your investment.Risks Related to Our Business and IndustryIf we are unable to attract new customers and expand sales to existing customers, our business growth could be slower than we expectand our business may be harmed.Our future growth depends in part upon increasing our customer base. Our ability to achieve significant growth in revenues in the future willdepend, in large part, upon the effectiveness of our sales and marketing efforts, both domestically and internationally. We may have difficultyattracting a potential client that has already invested substantial personnel and financial resources to integrate on-premise software into itsbusiness, as such organizations may be reluctant or unwilling to invest in a new product. If we fail to attract new customers or maintain andexpand those customer relationships, our revenues will grow more slowly than expected and our business will be harmed.16 Our future growth also depends upon our ability to add users and sell additional products to our existing customers. It is important for thefuture growth of our business that our existing customers make additional significant purchases of our products and add additional users to ourplatform. Our business also depends on retaining existing customers. If we do not retain customers, our customers do not purchase additionalproducts or we do not add additional users to our platform, our revenues may grow more slowly than expected, may not grow at all or may decline.Additionally, increasing incremental sales to our current customer base may require additional sales efforts that are targeted at seniormanagement. There can be no assurance that our efforts would result in increased sales to existing customers or additional revenues.Our business and growth depend substantially on customers renewing their subscription agreements with us and any decline in ourcustomer renewals could adversely affect our future operating results.Our initial subscription period for the majority of our customers is one to three years. In order for us to continue to increase our revenue, it isimportant that our existing customers renew their subscription agreements when the initial contract term expires. Although our agreementstypically include automatic renewal language, our customers may cancel their agreements at the expiration of the initial term. In addition, ourcustomers may renew for fewer users, renew for shorter contract lengths or renew for fewer products or solutions. Our customers’ renewal ratesmay decline or fluctuate as a result of a variety of factors, including their satisfaction or dissatisfaction with our software or professional services,our pricing or pricing structure, the pricing or capabilities of products or services offered by our competitors, the effects of economic conditions, orreductions in our customers’ spending levels. As the markets for our existing solutions mature, or as current and future competitors introduce newproducts or services that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customersor attract new customers at prices that are profitable to us. If this were to occur, it is possible that we would have to change our pricing model,offer price incentives or reduce our prices. If our customers do not renew their agreements with us or renew on terms less favorable to us, ourrevenues may decline.We have a history of losses in recent periods and we may not be able to generate sufficient revenue to achieve or sustain profitability.We have incurred net losses in recent periods, including $39.2 million and $24.7 million for the years ended December 31, 2016 and 2015,respectively. We had an accumulated deficit of $87.3 million at December 31, 2016. We may not be able to generate sufficient revenue to achieveand sustain profitability. We also expect our costs to increase in future periods as we continue to expend substantial resources on: •development of our cloud-based platform, including investments in research and development, product innovation to expand thefeatures and functionality of our software solutions and improvements to the scalability and security of our platform; •sales and marketing, including expansion of our direct sales force and our relationships with technology vendors, professionalservices firms, business process outsourcers, and resellers; •additional international expansion in an effort to increase our customer base and sales; and •general administration, including legal, accounting and other expenses related to being a public company.These investments may not result in increased revenue or growth of our business. If we fail to continue to grow our revenue, we may notachieve or sustain profitability.We have experienced rapid growth and organizational change in recent periods and if we fail to manage our growth effectively, we maybe unable to execute our business plan.We increased our number of full-time employees from 183 as of December 31, 2013 to 597 as of December 31, 2016 as we haveexperienced growth in number of customers and expanded our operations. Our growth has placed, and may continue to place, a significant strainon our managerial, administrative, operational, financial, and other resources. We intend to further expand our headcount and operations bothdomestically and internationally, with no assurance that our business or revenue will continue to grow. Continuing to create a global organizationand managing a geographically dispersed workforce will require substantial management effort, the allocation of valuable management resourcesand significant additional investment in our infrastructure. We will be required to continually improve our operational, financial and managementcontrols and our reporting procedures, and we may not be able to do so effectively, which could negatively affect our results of operations andoverall business. In addition, we may be unable to manage our expenses17 effectively in the future, which may negatively impact our gross margins or operating expenses in any particular quarter. Moreover, if we fail tomanage our anticipated growth and change in a manner that preserves the key aspects of our corporate culture, the quality of our softwaresolutions may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.Our quarterly results may fluctuate, and if we fail to meet the expectations of analysts or investors, our stock price and the value of yourinvestment could decline substantially.Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterlyfinancial results fall below the expectations of investors or any securities analysts who may follow our stock, the price of our common stock coulddecline substantially. Some of the important factors that may cause our revenue, operating results and cash flows to fluctuate from quarter toquarter include: •our ability to attract new customers and retain and increase sales to existing customers; •the number of new employees added; •the rate of expansion and productivity of our sales force; •changes in our or our competitors’ pricing policies; •the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business; •new products, features or functionalities introduced by us and our competitors; •significant security breaches, technical difficulties or interruptions to our platform; •the timing of customer payments and payment defaults by customers; •general economic conditions that may adversely affect either our customers’ ability or willingness to purchase additional products orservices, delay a prospective customer’s purchasing decision or affect customer retention; •changes in foreign currency exchange rates; •the impact of new accounting pronouncements; and •the timing and the amount of grants or vesting of equity awards to employees.Many of these factors are outside of our control, and the occurrence of one or more of them might cause our revenue, operating results andcash flows to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue, operating results and cash flows may not bemeaningful and should not be relied upon as an indication of future performance.If we are not able to provide successful enhancements, new features or modifications to our software solutions, our business could beadversely affected.If we are unable to provide enhancements and new features for our existing solutions or new solutions that achieve market acceptance orthat keep pace with rapid technological developments, our business could be adversely affected. The success of enhancements, new productsand solutions depends on several factors, including timely completion, introduction and market acceptance. We must continue to meet changingexpectations and requirements of our customers and, because our platform is designed to operate on a variety of systems, we will need tocontinuously modify and enhance our solutions to keep pace with changes in internet-related hardware and other software, communication,browser and database technologies. Our platform is also designed to integrate with ERP systems such as NetSuite, Oracle, SAP, and Workday,and will require modifications and enhancements as these systems change over time. Any failure of our solutions to operate effectively with futureplatforms and technologies could reduce the demand for our solutions or result in customer dissatisfaction. Furthermore, uncertainties about thetiming and nature of new solutions or technologies, or modifications to existing solutions or technologies, could increase our research anddevelopment expenses. If we are not successful in developing modifications and enhancements to our solutions or if we fail to bring them tomarket in a timely fashion, our solutions may become less marketable, less competitive or obsolete, our revenue growth may be significantlyimpaired, and our business could be adversely affected.18 We derive substantially all of our revenues from a limited number of software solutions, and our future growth is dependent on theirsuccess.We currently derive and expect to continue to derive substantially all of our revenues from our Financial Close Management andReconciliation Management solutions. As such, the continued growth in market demand for these solutions is critical to our continued success.We have recently introduced two new software solutions, Intercompany Hub and Insights, but cannot be certain that they will generate significantrevenues. In addition, those solutions are designed to be used with our Financial Close Management and Reconciliation Management solutionsand will not be sold independently. Accordingly, our business and financial results will be substantially dependent on a limited number of solutions.If our relationships with technology vendors and business process outsourcers are not successful, our business and growth will beharmed.We depend on, and anticipate that we will continue to depend on, various strategic relationships in order to sustain and grow our business.We have established strong relationships with technology vendors such as SAP and NetSuite to market our solutions to users of their ERPsolutions, and professional services firms such as Deloitte and KPMG, and business process outsourcers such as Cognizant, Genpact and IBMto supplement delivery and implementation of our applications. We believe these relationships enable us to effectively market our solutions byoffering a complementary suite of services. In particular, we have a strategic relationship with SAP to market our solution to users of SAP’s ERPsolutions. Our solution is an SAP-endorsed business solution that integrates with SAP’s ERP solutions. Under our agreement with SAP, which weentered into in 2013, we pay SAP a fee based on a percentage of revenues from our new customers that use an SAP ERP system. We continueto pay SAP a fee for these customers over the term of their subscription agreements. For the year ended December 31, 2016, revenues from ourcustomers that use an SAP ERP solution accounted for $20.7 million, or approximately 17%, of our total revenues. For the year ended December31, 2015, revenues from our customers under this agreement accounted for $9.4 million, or approximately 11%, of our total revenues. If we areunsuccessful in maintaining our relationship with SAP, or if we are unsuccessful in supporting or expanding our relationships with other companies,our business would be adversely affected.Identifying, negotiating and documenting relationships with other companies require significant time and resources. Our agreements withtechnology vendors are typically limited in duration, non-exclusive, cancellable upon notice, and do not prohibit the counterparties from workingwith our competitors or from offering competing services. For example, our agreement with SAP can be terminated by either party upon sixmonths’ notice, and there is no assurance that our relationship with SAP will continue. If we are no longer an SAP-endorsed business solution, ourbusiness could be adversely affected. Our competitors may be effective in providing incentives to third parties to favor their products or servicesor to prevent or reduce subscriptions to our platform. If we are unsuccessful in establishing or maintaining our relationships, our ability to competein the marketplace or to grow our revenue could be impaired and our operating results would suffer. Even if we are successful, we cannot assureyou that these relationships will result in improved operating results.If our security controls are breached or unauthorized, or inadvertent access to customer, employee or other confidential data isotherwise obtained, our software solutions may be perceived as insecure, we may lose existing customers or fail to attract newcustomers, our business may be harmed, and we may incur significant liabilities.Use of our platform involves the storage, transmission and processing of our customers’ proprietary data, including highly confidentialfinancial information regarding their business and personal or identifying information regarding their customers or employees. Our platform is at riskfor breaches as a result of third-party action, employee, vendor or contractor error, malfeasance, or other factors. If any unauthorized orinadvertent access to, or a security breach of, our platform occurs, or is believed to occur, such an event could result in the loss of data, loss ofbusiness, severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation,indemnity obligations, damages for contract breach, or penalties for violation of applicable laws or regulations. Security breaches could also resultin significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have beencaused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, and otherliabilities.19 We incur significant expenses to prevent security breaches, including deploying additional personnel and protection technologies, trainingemployees and engaging third-party experts and contractors. If a high profile security breach occurs with respect to another SaaS provider, ourclients and potential clients may lose trust in the security of our platform or in the SaaS business model generally, which could adversely impactour ability to retain existing clients or attract new ones. Even in the absence of any security breach, customer concerns about security, privacy ordata protection may deter them from using our platform for activities that involve personal or other sensitive information. Our errors and omissionsinsurance policies covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all potentialliability. Although we maintain cyber liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred orthat insurance will continue to be available to us on economically reasonable terms, or at all.Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified untilthey are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We mayalso experience security breaches that may remain undetected for an extended period. From time to time, we experience cyber security events,including directed “phishing” attacks against our employees, web attacks and other information technology incidents that are typical for a SaaScompany of our size. These threats continue to evolve and are difficult to predict due to advances in computer capabilities, new discoveries in thefield of cryptography and new and sophisticated methods used by criminals, including phishing, social engineering or other illicit acts. There can beno assurances that our defensive measures will prevent cyber attacks, and any incidents could damage our brand and reputation and negativelyimpact our business.Because data security is a critical competitive factor in our industry, we make numerous statements in our privacy policy and customeragreements, through our certifications to privacy standards and in our marketing materials, providing assurances about the security of our platformincluding detailed descriptions of security measures we employ. Should any of these statements be untrue or become untrue, even throughcircumstances beyond our reasonable control, we may face claims of misrepresentation or deceptiveness by the U.S. Federal Trade Commission,state and foreign regulators and private litigants. Our errors and omissions insurance coverage covering security and privacy damages and claimexpenses may not be sufficient to compensate for all liabilities.Interruptions or performance problems associated with our software solutions, platform and technology may adversely affect ourbusiness and operating results.Our continued growth depends in part on the ability of our existing and potential customers to access our platform at any time. Our platformis proprietary, and we rely on the expertise of members of our engineering, operations and software development teams for its continuedperformance. We have experienced, and may in the future experience, disruptions, outages and other performance problems due to a variety offactors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelmingnumber of users accessing our platform simultaneously, denial of service attacks, or other security related incidents. In some instances, we maynot be able to identify the cause or causes of these performance problems within an acceptable period of time. Because of the seasonal nature offinancial close activities, increasing complexity of our platform and expanding user population, it may become difficult to accurately predict andtimely address performance and capacity needs during peak load times. If our platform is unavailable or if our users are unable to access it withina reasonable amount of time or at all, our business would be harmed. In addition, our infrastructure does not currently include the real-timemirroring of data. Therefore, in the event of any of the factors described above, or other failures of our infrastructure, customer data may bepermanently lost. Our customer agreements typically include performance guarantees and service level standards that obligate us to providecredits in the event of a significant disruption in our platform. To the extent that we do not effectively address capacity constraints, upgrade oursystems and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, ourbusiness and operating results may be adversely affected.If our software contains serious errors or defects, we may lose revenue and market acceptance and may incur costs to defend or settleproduct liability claims.Complex software such as ours often contains errors or defects, particularly when first introduced or when new versions or enhancementsare released. Despite internal and third-party testing and testing by our customers, our current and future software may contain serious defects,which could result in lost revenue or a delay in market acceptance.20 Since our customers use our platform for critical business functions, such as assisting in the financial close or account reconciliationprocess, errors, defects or other performance problems could result in damage to our customers. They could seek significant compensation fromus for the losses they suffer. Although our customer agreements typically contain provisions designed to limit our exposure to product liabilityclaims, existing or future laws or unfavorable judicial decisions could negate these limitations. Even if not successful, a product liability claimbrought against us would likely be time-consuming and costly and could seriously damage our reputation in the marketplace, making it harder forus to sell our products.We depend on our executive officers and other key employees, and the loss of one or more of these employees or an inability to attractand retain highly-skilled employees could adversely affect our business.Our success depends largely upon the continued services of our executive officers and other key employees. We rely on our leadershipteam in the areas of research and development, operations, security, marketing, sales, and general and administrative functions. In particular, ourfounder and Chief Executive Officer provides our strategic direction and has built and maintained what we believe is an attractive workplaceculture. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel. From time to time, there may bechanges in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. Key membersof our current management and finance teams have only been working together for a relatively short period of time. If we are not successful inintegrating these key employees into our organization, such failure could disrupt our business operations. We do not have employment agreementswith our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they couldterminate their employment with us at any time. The loss of one or more of our executive officers or key employees, especially our founder andChief Executive Officer, could have an adverse effect on our business.In addition, to execute our growth plan, we must attract and retain highly-qualified personnel. Competition for personnel is intense, especiallyfor engineers experienced in designing and developing software applications and experienced sales professionals. We have, from time to time,experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of thecompanies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or othercompanies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversionof our time and resources. Likewise, if competitors hire our employees, we may divert time and resources to deterring any breach by our formeremployees or their new employers of their legal obligations. Given the competitive nature of our industry, we have both received and asserted suchclaims in the past. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connectionwith their employment. If the perceived value of our equity awards declines, it may adversely affect our ability to recruit and retain highly-skilledemployees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects couldbe adversely affected.If our industry does not continue to develop as we anticipate or if potential customers do not continue to adopt our platform, our saleswould not grow as quickly as expected, or at all, and our business and operating results and financial condition would be adverselyaffected.We operate in a rapidly evolving industry focused on modernizing financial and accounting operations. Our solutions are relatively new andhave been developed to respond to an increasingly global and complex business environment with more rigorous regulatory standards. Iforganizations do not increasingly allocate their budgets to financial automation software as we expect or if we do not succeed in convincingpotential customers that our platform should be an integral part of their overall approach to their accounting processes, our sales may not grow asquickly as anticipated, or at all. Our business is substantially dependent on enterprises recognizing that accounting errors and inefficiencies arepervasive and are not effectively addressed by legacy solutions. Future deterioration in general economic conditions may also cause ourcustomers to cut their overall information technology spending, and such cuts may disproportionately affect software solutions like ours to theextent customers view our solutions as discretionary. If our revenue does not increase for any of these reasons, or any other reason, ourbusiness, financial condition and operating results may be materially adversely affected.21 The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.The market for accounting and financial software and services is highly competitive and rapidly evolving. Our competitors vary in size andin the breadth and scope of the products and services they offer. We often compete with other vendors of financial automation software such asTrintech. We also compete with large, well-established, enterprise application software vendors, such as Oracle, whose Hyperion softwarecontains components that compete with our platform. In the future, a competitor offering ERP software could include a free service similar to oursas part of its standard offerings or may offer a free standalone version of a service similar to ours. Further, other established software vendors notcurrently focused on accounting and finance software and services may expand their services to compete with us.Our competitors may have greater name recognition, longer operating histories, more established customer and marketing relationships,larger marketing budgets and significantly greater resources than we do. They may be able to respond more quickly and effectively than we can tonew or changing opportunities, technologies, standards, or customer requirements. In addition, some of our competitors have partnered with, orhave acquired, and may in the future partner with or acquire, other competitors to offer services, leveraging their collective competitive positions,which makes, or would make, it more difficult to compete with them.With the introduction of new technologies, the evolution of our platform and new market entrants, we expect competition to intensify in thefuture. Increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our platform to achieve or maintainmore widespread market acceptance, any of which could harm our business.Our financial results may fluctuate due to our long and variable sales cycle.Our sales cycle generally varies in duration between four to nine months and, in some cases, even longer depending on the size of thepotential customer. The sales cycle for our global enterprise customers is generally longer than that of our mid-market customers. Factors thatmay influence the length and variability of our sales cycle include: •the need to educate potential customers about the uses and benefits of our software solutions; •the need to educate potential customers on the differences between traditional, on-premise software and SaaS solutions; •the relatively long duration of the commitment customers make in their agreements with us; •the discretionary nature and timing of potential customers’ purchasing and budget cycles and decisions; •the competitive nature of potential customers’ evaluation and purchasing processes; •announcements or planned introductions of new products by us or our competitors; and •lengthy purchasing approval processes of potential customers.We may incur higher costs and longer sales cycles as a result of large enterprises representing an increased portion of our revenue. In thismarket, the decision to subscribe to our solutions may require the approval of more technical and information security personnel and managementlevels within a potential customer’s organization, and if so, these types of sales require us to invest more time educating these potentialcustomers. In addition, larger organizations may demand more features and integration services and have increased purchasing power andleverage in negotiating contractual arrangements with us, which may contain restrictive terms favorable to the larger organization. As a result ofthese factors, these sales opportunities may require us to devote greater research and development, sales, product support, and professionalservices resources to individual customers, resulting in increased costs and reduced profitability, and would likely lengthen our typical sales cycle,which could strain our resources.In addition, more sales are closed in the last month of a quarter than other times. If we are unable to close sufficient transactions in aparticular period, or if a significant amount of transactions are delayed until a subsequent period, our operating results for that period, and for anyfuture periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected.22 We recognize subscription revenue over the term of our customer contracts and, consequently, downturns or upturns in new sales maynot be immediately reflected in our operating results and may be difficult to discern.We recognize subscription revenue from our platform ratably over the terms of our customers’ agreements, most of which have one-yearterms but an increasing number of which have up to three-year terms. As a result, most of the revenue we report in each quarter is derived fromthe recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewedsubscriptions in any single quarter may have a small impact on our revenue results for that quarter. However, such a decline will negatively affectour revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our platform, and potentialchanges in our pricing policies or rate of expansion or retention, may not be fully reflected in our results of operations until future periods. We mayalso be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, a significant majority of our costs areexpensed as incurred, while revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number ofour customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Oursubscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from newcustomers must be recognized over the applicable subscription term.We previously identified material weaknesses in our internal control over financial reporting. Although we believe these materialweaknesses have since been remediated, we may identify additional material weaknesses in the future or otherwise fail to maintain aneffective system of internal control over financial reporting in the future and may not be able to accurately or timely report our financialcondition or results of operations, which may adversely affect investor confidence in us and the price of our common stock.As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in suchinternal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine theeffectiveness of our internal control over financial reporting and, beginning with our Annual Report on Form 10-K for the year ending December 31,2017, provide a management report on internal control over financial reporting. A material weakness is a deficiency or combination of deficiencies,in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements willnot be prevented or detected on a timely basis.During 2015, we identified material weaknesses in our internal control over financial reporting. We identified a material weakness related toan insufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with ourcorporate structure and financial reporting requirements. This lack of an effective control environment contributed to material weaknesses from thelack of controls over the selection of certain accounting policies and procedures and segregation of duties. Specifically, we did not have policiesand controls designed to address the accounting for unusual or complex transactions, or the initial selection of, and the ongoing monitoring ofchanges in, accounting policies. Further, we did not maintain sufficiently designed segregation of duties including controls over journal entries suchthat there was a reasonable possibility that a material misstatement would not be prevented or detected on a timely basis.These material weaknesses contributed to the restatement and revision of the previously-issued 2013 financial statements and auditadjustments in the 2014 financial statements principally related to, but not limited to, the following areas: capitalization of internal use softwarecosts, accounting for and valuation of warrants issued with our debt facility, cut-off of transactions at the 2013 Acquisition date, accounting for thenew basis of accounting arising from the 2013 Acquisition, including the valuation of the fair value deferred revenue assumed at the 2013Acquisition date, forecasting of contingent consideration and the determination of the useful lives of intangible assets.In response to the identified material weaknesses, we took a number of actions to improve our internal control over financial reporting duringthe year ended December 31, 2016: •We hired additional personnel in our accounting and finance department with extensive knowledge in accounting and financialreporting; •We developed and implemented a financial reporting risk assessment and formalization of accounting policies and procedures; •We created additional internal reporting procedures, including those designed to enhance our review processes; •We increased segregation of duties, including controls over journal entries;23 •We organized and implemented a Disclosure Committee to review our transactions each quarter with key management andoperational personnel, which includes the review and discussion of unusual, complex and non-routine transactions; and •We prepared memoranda addressing accounting considerations of significant new transactions, which was reviewed by the principalaccounting officer.Our management believes that these and other actions taken during the year ended December 31, 2016 have been fully implemented andare operating effectively. As a result, we have concluded that our remediation efforts have been successful, and that the previously-identifiedmaterial weaknesses in our internal controls have been remediated. However, we cannot assure you that the measures we have taken to date, andare continuing to implement, or any measures we may take in the future, will be sufficient to identify or prevent future material weaknesses. Ifother material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired, whichcould possibly result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis.The process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley Act will be time consuming, costly and complicated. If, during the evaluation and testing process, we identify one or more other materialweaknesses in our internal control over financial reporting, our management will be unable to assert that our internal control over financial reportingis effective. Even if our management concludes that our internal control over financial reporting is effective, our independent registered publicaccounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls aredocumented, designed, implemented, or reviewed. If we are unable to assert that our internal control over financial reporting is effective, or whenrequired in the future, if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internalcontrol over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of ourcommon stock could be adversely affected, and we could become subject to litigation or investigations by the stock exchange on which oursecurities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.We rely on a limited number of data centers to deliver our cloud-based software solutions and any disruption of service at these centerscould harm our business.We manage our software solutions and serve most of our customers using a cloud-based infrastructure that is operated by a limited numberof third-party data center facilities in North America and Europe. We do not control the operation of these facilities. Any changes in third-partyservice levels at our data centers or any disruptions or delays from errors, defects, hacking incidents, security breaches, computer viruses orother intentional bad acts or performance problems could harm our reputation, damage our customers’ businesses and adversely affect ourbusiness and operating results. Our data centers are also vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, war,terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events. If our data centers werecompromised or unavailable or our users were unable to access our solutions for any reason, our business and operations would be materially andadversely affected.Our customers have experienced minor disruptions and outages in accessing our solutions in the past, and may in the future experience,disruptions, outages and other performance problems. Although we expend considerable effort to ensure that our platform performance is capableof handling existing and increased traffic levels, the ability of our cloud-based solutions to effectively manage any increased capacity requirementsdepends on our third-party providers. Our third-party data center providers may not be able to meet such performance requirements, especially tocover peak levels or spikes in traffic and, as a result, our customers may experience delays in accessing our solutions or encounter slowerperformance in our solutions, which could significantly harm the operations of these facilities. Interruptions in our services might reduce ourrevenue, cause us to issue credits to customers, subject us to potential liability, and cause customers to terminate their subscriptions or harm ourrenewal rates.If we do not accurately predict our infrastructure capacity requirements, our customers could experience service shortfalls. The provisioningof additional cloud hosting capacity and data center infrastructure requires lead time. As we continue to add data centers, restructure our datamanagement plans and increase capacity in existing and future data centers, we may move or transfer our data and our customers’ data. Forexample, in early 2016, we began hosting customers at a data facility located in Las Vegas, Nevada. Despite precautions taken during suchprocesses and procedures, any unsuccessful data transfers may impair the delivery of our service, and we may experience costs or24 downtime in connection with the transfer of data to other facilities which may lead to, among other things, customer dissatisfaction and non-renewals. The owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all.If we are unable to renew these agreements on commercially reasonable terms, we may be required to transfer to new data center facilities, andwe may incur significant costs and possible service interruption in connection with doing so.Failure to effectively expand our sales capabilities could harm our ability to increase our customer base.Increasing our customer base and sales will depend, to a significant extent, on our ability to effectively expand our sales and marketingoperations and activities. We are substantially dependent on our direct sales force to obtain new customers. From January 1, 2014 to December31, 2016, our sales and marketing teams increased from 68 to 281 employees. We plan to continue to expand our direct sales force bothdomestically and internationally. We believe that there is significant competition for experienced sales professionals with the sales skills andtechnical knowledge that we require. Our ability to achieve significant revenue growth in the future will depend, in part, on our success in recruiting,training and retaining a sufficient number of experienced sales professionals. New hires require significant training and time before they achieve fullproductivity, particularly in new sales segments and territories. Our recent hires and planned hires may not become as productive as quickly as weexpect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business. Ourbusiness will be harmed if our sales expansion efforts do not generate a significant increase in revenue.If we are unable to develop and maintain successful relationships with resellers, our business, operating results and financial conditioncould be adversely affected.We believe that continued growth in our business is dependent upon identifying, developing and maintaining strategic relationships withcompanies that resell our solutions. We plan to expand our small but growing network of resellers and to add new resellers, in particular to helpgrow our mid-market business globally. Our agreements with our existing resellers are non-exclusive, meaning resellers may offer customers theproducts of several different companies, including products that compete with ours. They may also cease marketing our solutions with limited orno notice and with little or no penalty. We expect that any additional resellers we identify and develop will be similarly non-exclusive and not boundby any requirement to continue to market our solutions. If we fail to identify additional resellers, in a timely and cost-effective manner, or at all, orare unable to assist our current and future resellers in independently selling our solutions, our business, results of operations and financialcondition could be adversely affected. If resellers do not effectively market and sell our solutions, or fail to meet the needs of our customers, ourreputation and ability to grow our business may also be adversely affected.If we are not able to maintain and enhance our brand, our business, operating results and financial condition may be adversely affected.We believe that maintaining and enhancing our reputation for accounting and finance software is critical to our relationships with our existingcustomers and to our ability to attract new customers. The successful promotion of our brand attributes will depend on a number of factors,including our marketing efforts, our ability to continue to develop high-quality software and our ability to successfully differentiate our platform fromcompetitive products and services. Our brand promotion activities may not ultimately be successful or yield increased revenue. In addition,independent industry analysts provide reviews of our platform, as well as products and services offered by our competitors, and perception of ourplatform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to thoseof our competitors’ products and services, our brand may be adversely affected.The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as ourmarket becomes more competitive, as we expand into new markets and as more sales are generated. To the extent that these activities yieldincreased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, ourbusiness may not grow, we may have reduced pricing power relative to competitors, and we could lose customers or fail to attract potentialcustomers, all of which would adversely affect our business, results of operations and financial condition.25 Our long-term success depends, in part, on our ability to expand the sales of our solutions to customers located outside of the UnitedStates, and thus our business is susceptible to risks associated with international sales and operations.We currently maintain offices and/or have sales personnel in Australia, Canada, France, Germany, Malaysia, Netherlands, Singapore, SouthAfrica, and the United Kingdom, and we intend to build out our international operations. As part of our ongoing international expansion strategy, inAugust 2016, we acquired Runbook, a Netherlands-based provider of financial close automation software solutions to SAP customers. We derivedapproximately 16% and 14% of our revenues from sales outside the United States in the years ended December 31, 2016 and 2015, respectively.Any international expansion efforts that we may undertake, including the Runbook Acquisition, may not be successful. In addition, conductinginternational operations in new markets subjects us to new risks that we have not generally faced in the United States. These risks include: •localization of our solutions, including translation into foreign languages and adaptation for local practices and regulatoryrequirements; •lack of familiarity and burdens of complying with foreign laws, legal standards, regulatory requirements, tariffs, and other barriers; •unexpected changes in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties, or other trade restrictions; •differing technology standards; •longer accounts receivable payment cycles and difficulties in collecting accounts receivable; •difficulties in managing and staffing international operations and differing employer/employee relationships; •fluctuations in exchange rates that may increase the volatility of our foreign-based revenue; •potentially adverse tax consequences, including the complexities of foreign value-added tax (or other tax) systems and restrictions onthe repatriation of earnings; •uncertain political and economic climates, including the significant volatility in the global financial markets; and •reduced or varied protection for intellectual property rights in some countries.These factors may cause our international costs of doing business to exceed our comparable domestic costs. Operating in internationalmarkets also requires significant management attention and financial resources. Any negative impact from our international business efforts couldnegatively impact our business, results of operations and financial condition as a whole.In addition, the President of the United States and Congress have proposed, formally or informally, various changes, including regulatoryand tax reform that would have uncertain and potentially adverse effects on our business.We use third-party contractors outside of the United States to supplement our research and development capabilities, which may exposeus to risks, including risks inherent in foreign operations.We use third-party contractors outside of the United States to supplement our research and development capabilities. We currently usethird-party contractors located in Romania and China. Managing operations that are remote from our U.S. headquarters is difficult and we may notbe able to manage these third-party contractors successfully. If we fail to maintain productive relationships with these contractors generally, wemay be required to develop our solutions in a less efficient and cost-effective manner and our product release schedules may be delayed while wehire software developers or find alternative contract development resources. Additionally, while we take precautions to ensure that softwarecomponents developed by our third-party contractors are reviewed and that our source code is protected, misconduct by our third-party contractorscould result in infringement or misappropriation of our intellectual property. Furthermore, any acts of espionage, malware attacks, theft ofconfidential information, or other malicious cyber incidents attributed to our third-party contractors may compromise our system infrastructure,expose us to litigation and lead to reputational harm that could result in a material adverse effect on our financial condition and operating results.26 Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.Our success and ability to compete depend, in part, upon our intellectual property. We currently have one patent application, which may notresult in an issued patent. We primarily rely on copyright, trade secret and trademark laws, trade secret protection, and confidentiality or licenseagreements with our employees, customers, partners, and others to protect our intellectual property rights. However, the steps we take to protectour intellectual property rights may be inadequate.In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Inthe past, we have utilized demand letters as a means to assert and resolve claims regarding potential misuse of our proprietary or trade secretinformation. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting tomanagement, and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectualproperty rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual propertyrights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact ourbusiness.Suits by third parties for alleged infringement of their proprietary rights could cause us to incur significant expenses or liabilities.There is considerable patent and other intellectual property development activity in our industry. Our future success depends, in part, on notinfringing upon the intellectual property rights of others. From time to time, our competitors or other third parties may claim that our solutions andunderlying technology infringe or violate their intellectual property rights, and we may be found to be infringing upon such rights. We may beunaware of the intellectual property rights of others that may cover some or all of our technology. Any claims or litigation could cause us to incursignificant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, preventus from offering our solutions or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers orother companies in connection with any such litigation and to obtain licenses, modify our solutions or refund subscription fees, which could furtherexhaust our resources. In addition, we may incur substantial costs to resolve claims or litigation, whether or not successfully asserted against us,which could include payment of significant settlement, royalty or license fees, modification of our solutions, or refunds to customers ofsubscription fees. Even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual propertycould be costly and time-consuming and divert the attention of our management and other employees from our business operations. Such disputescould also disrupt our solutions, adversely impacting our customer satisfaction and ability to attract customers.We use open source software in our products, which could subject us to litigation or other actions.We use open source software in our products and may use more open source software in the future. From time to time, there have beenclaims challenging the use of open source software against companies that incorporate open source software into their products. As a result, wecould be subject to suits by parties claiming misuse of, or a right to compensation for, what we believe to be open source software. Litigation couldbe costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research anddevelopment resources to change our products. In addition, if we were to combine our proprietary software products with open source software in acertain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products. Ifwe inappropriately use open source software, we may be required to re-engineer our products, discontinue the sale of our products or take otherremedial actions.Privacy and data security concerns, and data collection and transfer restrictions and related domestic or foreign regulations, may limitthe use and adoption of our solutions and adversely affect our business.Personal privacy, information security, and data protection are significant issues in the United States, Europe and many other jurisdictionswhere we offer our platform. The regulatory framework governing the collection, processing, storage, and use of business information, particularlyinformation that affects financial statements and personal data, is rapidly evolving and any failure or perceived failure to comply with applicableprivacy, security or data protection laws or regulations may adversely affect our business.27 The U.S. federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution,use, security, and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protectionlaws are being applied to enforce regulations related to the online collection, use and dissemination of data. Some of these requirements includeobligations on companies to notify individuals of security breaches involving particular personal information, which could result from breachesexperienced by us or by organizations with which we have formed strategic relationships. Even though we may have contractual protections withsuch organizations, notifications related to a security breach could impact our reputation, harm customer confidence, hurt our expansion into newmarkets, or cause us to lose existing customers.Further, many foreign countries and governmental bodies, including the European Union, or EU, where we conduct business and haveoffices, have laws and regulations concerning the collection and use of personal data obtained from their residents or by businesses operatingwithin their jurisdiction. These laws and regulations often are more restrictive than those in the United States. Laws and regulations in thesejurisdictions apply broadly to the collection, use, storage, disclosure, and security of data that identifies or may be used to identify or locate anindividual, such as names, email addresses and, in some jurisdictions, Internet Protocol, or IP, addresses. With regard to data transfers ofpersonal data from our European employees and customers to the United States, we historically relied on the U.S. Department of Commerce’sSafe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks, as agreed to and set forth by the U.S.Department of Commerce, and the European Union and Switzerland, which established means for legitimizing the transfer of personal data bycompanies doing business in Europe from the EU to the U.S. As a result of the October 6, 2015 European Court of Justice opinion in Case C-362/14 (Schrems v. Data Protection Commissioner) or, the ECJ Ruling, the U.S.-EU Safe Harbor Framework was deemed an invalid method ofcompliance with EU restrictions on data transfers. We have taken certain measures to legitimize our transfers of personal data, both internally andon behalf of our customers, from the EU to the United States in the wake of the ECJ Ruling. Additionally, EU and U.S. political authorities adoptedthe U.S. EU Privacy Shield on July 12, 2016, which may provide a new mechanism for companies to transfer EU personal data to the UnitedStates. It is unclear at this time whether the U.S. EU Privacy Shield will serve as an appropriate means for us to transfer EU personal data fromthe EU to the United States. Our means for transferring personal data from the EU may not be adopted by all of our customers and may besubject to legal challenge by data protection authorities, and we may experience reluctance or refusal by European customers to use our solutionsdue to potential risk exposure as a result of the ECJ Ruling. We and our customers face a risk of enforcement actions taken by EU data protectionauthorities regarding data transfers from the EU to the United States.We also expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection andinformation security in the United States, the EU and other jurisdictions. For example, the European Commission recently adopted a General DataProtection Regulation, effective in May 2018, that will supersede current EU data protection legislation, impose more stringent EU data protectionrequirements and provide for greater penalties for noncompliance. We cannot yet determine the impact such future laws, regulations and standardsmay have on our business. Such laws and regulations are often subject to differing interpretations and may be inconsistent among jurisdictions.These and other requirements could reduce demand for our service, increase our costs, impair our ability to grow our business, or restrict ourability to store and process data or, in some cases, impact our ability to offer our service in some locations and may subject us to liability. Further,in view of new or modified federal, state or foreign laws and regulations, industry standards, contractual obligations, and other legal obligations, orany changes in their interpretation, we may find it necessary or desirable to fundamentally change our business activities and practices or toexpend significant resources to modify our software or platform and otherwise adapt to these changes. We may be unable to make such changesand modifications in a commercially reasonable manner or at all, and our ability to develop new products and features could be limited.Further, following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the EU, it is expected that theUnited Kingdom government will initiate a process to leave the EU (often referred to as “Brexit”). The Brexit has created uncertainty with regard tothe regulation of data protection in the United Kingdom. In particular, it is unclear whether the United Kingdom will enact data protection laws orregulations designed to be consistent with the pending EU General Data Protection Regulation and how data transfers to and from the UnitedKingdom will be regulated.Our customers also expect that we comply with regulatory standards that may place additional burdens on us. Our customers expect us tomeet voluntary certifications or adhere to standards established by third parties, such as the SSAE 16, SOC1 and SOC2 audit processes, andmay demand that they be provided a report from our auditors that we are in compliance. If we are unable to maintain these certifications or meetthese standards, it could adversely affect our customers’ demand for our service and could harm our business.28 The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our serviceand reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance. Privacy, information security and dataprotection concerns, whether valid or not valid, may inhibit market adoption of our platform, particularly in certain industries and foreign countries.We depend and rely upon SaaS applications from third parties to operate our business and interruptions or performance problems withthese technologies may adversely affect our business and operating results.We rely heavily on SaaS applications from third parties in order to operate critical functions of our business, including billing and ordermanagement, enterprise resource planning and financial accounting services. If these services become unavailable due to extended outages,interruptions or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to managefinances could be interrupted and our processes for managing sales of our solutions and supporting our customers could be impaired untilequivalent services, if available, are identified, obtained and implemented, all of which could adversely affect our business.We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of oursoftware solutions.We rely on computer hardware purchased or leased and software licensed from third parties in order to deliver our software solutions. Thishardware and software may not continue to be available on commercially reasonable terms, if at all. Any loss of the right to use any of thishardware or software could result in delaying or preventing our ability to provide our software solutions until equivalent technology is eitherdeveloped by us or, if available, identified, obtained and integrated. In addition, errors or defects in third-party hardware or software used in oursoftware solutions could result in errors or a failure, which could damage our reputation, impede our ability to provide our platform or processinformation, and adversely affect our business and results of operations.We face exposure to foreign currency exchange rate fluctuations that could harm our results of operations.We conduct transactions, particularly intercompany transactions, in currencies other than the U.S. dollar, primarily the British pound and theEuro. As we grow our international operations, we expect the amount of our revenues that are denominated in foreign currencies to increase in thefuture. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar could affect our revenue and operating results due totransactional and translational remeasurements that are reflected in our results of operations. As a result of such foreign currency exchange ratefluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent thatfluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, thetrading price of our common stock could be adversely affected.Additionally, as a result of Brexit, global markets and foreign currencies were adversely impacted. In particular, the value of the Britishpound declined as compared to the U.S. dollar and other currencies. This volatility in foreign currencies is expected to continue as the U.K.negotiates and executes its exit from the European Union, but it is uncertain over what time period this will occur. A significantly weaker Britishpound compared to the U.S. dollar could have a negative effect on our business, financial condition and results of operations.We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may usederivative instruments, such as foreign currency forward and option contracts, to hedge exposures to fluctuations in foreign currency exchangerates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements inforeign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if weare unable to structure effective hedges with such instruments.We are subject to governmental export and import controls that could impair our ability to compete in international markets due tolicensing requirements and subject us to liability if we are not in full compliance with applicable laws.Our solutions are subject to export controls, including the Commerce Department’s Export Administration Regulations and various economicand trade sanctions regulations established by the Treasury Department’s Office of Foreign Assets Controls. Obtaining the necessaryauthorizations, including any required license, for a particular export or sale may be time-consuming, is not guaranteed and may result in the delayor loss of sales opportunities. The U.S. export control laws and economic sanctions laws prohibit the export, re-export or transfer of specificproducts and services to29 U.S. embargoed or sanctioned countries, governments and persons. Even though we take precautions to prevent our solutions from being providedto U.S. sanctions targets, our solutions could be sold by resellers or could be used by persons in sanctioned countries despite such precautions.Failure to comply with the U.S. export control, sanctions and import laws could have negative consequences, including government investigations,penalties and reputational harm. We and our employees could be subject to civil or criminal penalties, including the possible loss of export orimport privileges, fines, and, in extreme cases, the incarceration of responsible employees or managers. In addition, if our resellers fail to obtainappropriate import, export or re-export licenses or authorizations, we may also be adversely affected through reputational harm and penalties.In addition, various countries regulate the import of encryption technology, including through import permitting/licensing requirements, andhave enacted laws that could limit our ability to distribute our solutions or could limit our customers’ ability to implement or access our solutions inthose countries. Changes in our solutions or changes in export, sanctions and import regulations may create delays in the introduction and sale ofour solutions in international markets, prevent our customers with international operations from accessing our solutions or, in some cases,preventing the export or import of our solutions to some countries, governments or persons altogether. Any change in export or import regulations,economic sanctions or related laws, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons, ortechnologies targeted by such regulations, could result in decreased use of our solutions, or in our decreased ability to export or sell our solutionsto existing or potential customers with international operations. Any decreased use of our solutions or limitation on our ability to export or sell oursolutions would likely adversely affect our business, financial condition and results of operations.We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such transactions.On August 31, 2016, we completed the Runbook Acquisition. We expect to evaluate and consider potential strategic transactions, includingacquisitions of, or investments in, businesses, technologies, services, products, and other assets in the future. We also may enter intorelationships with other businesses to expand our products and services, which could involve preferred or exclusive licenses, additional channelsof distributions or discount pricing.The Runbook Acquisition or any future acquisition, investment or business relationship may result in unforeseen operating difficulties andexpenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, oroperations of the acquired companies, such as Runbook, particularly if the key personnel of the acquired company choose not to work for us, theirsoftware is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes inownership, management or otherwise. In addition, Runbook offers an on-premise solution to its customers. If we are unable to migrate thosecustomers to our cloud solution or if we are unable to integrate Runbook’s on-premise software with our platform, our business may be adverselyaffected. Acquisitions may also disrupt our business, divert our resources and require significant management attention that would otherwise beavailable for development of our existing business. Moreover, the anticipated benefits of any acquisition, investment or business relationship maynot be realized or we may be exposed to unknown risks or liabilities.Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may often besubject to approvals that are beyond our control. Consequently, these transactions, even if announced, may not be completed. For one or more ofthose transactions, we may: •issue additional equity securities that would dilute our existing stockholders; •use cash that we may need in the future to operate our business; •incur large charges or substantial liabilities; •incur debt on terms unfavorable to us or that we are unable to repay; •encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures;and •become subject to adverse tax consequences, substantial depreciation and amortization or deferred compensation charges.30 The nature of our business requires the application of complex revenue and expense recognition rules and the current legislative andregulatory environment affecting generally accepted accounting principles is uncertain. Significant changes in current principles couldaffect our financial statements going forward and changes in financial accounting standards or practices may cause adverse, unexpectedfinancial reporting fluctuations and harm our operating results.The accounting rules and regulations that we must comply with are complex and subject to interpretation by the FASB, the SEC and variousbodies formed to promulgate and interpret appropriate accounting principles. Recent actions and public comments from the FASB and the SEChave focused on the integrity of financial reporting and internal controls. In addition, many companies’ accounting policies are being subject toheightened scrutiny by regulators and the public. Further, the accounting rules and regulations are continually changing in ways that couldmaterially impact our financial statements. For example, in May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09,Revenue from Contracts with Customers (Topic 606), as amended, which will supersede nearly all existing revenue recognition guidance. Althoughthe new standard permits early adoption as early as January 1, 2017, the effective date of the new revenue standard is January 1, 2018. The newstandard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modifiedretrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providingcertain additional disclosures. We will adopt the new revenue guidance in the first quarter of 2018 though we have not yet determined whether toadopt using a full retrospective or modified retrospective approach. We are currently assessing the impact of the new revenue guidance on ourarrangements. We currently believe that the new guidance will impact the amount and timing of incremental costs of obtaining a contract, such assales commissions. We generally do not pay sales commissions upon contract renewal and therefore, under the new revenue guidance, the salescommissions will be recognized over an estimated customer life rather than over the non-cancelable term under current guidance. The newguidance is also expected to impact our arrangements subject to current software revenue recognition guidance and also require incrementaldisclosures of our revenue arrangements. We have not yet quantified the impact of these changes. Adoption of this standard will also requirechanges to our business processes, systems and controls to support the new revenue recognition guidance. We are in the process of identifyingsuch changes.We cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements goingforward, which could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before theannouncement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition oflicense revenue and other revenue sources, our operating results could be significantly affected.Incorrect or improper implementation or use of our solutions could result in customer dissatisfaction and negatively affect our business,results of operations, financial condition, and growth prospects.Our platform is deployed in a wide variety of technology environments and into a broad range of complex workflows. Our platform has beenintegrated into large-scale, enterprise-wide technology environments, and specialized use cases, and our success depends on our ability toimplement our platform successfully in these environments. We often assist our customers in implementing our platform, but many customersattempt to implement even complex deployments themselves or use a third-party service firm. If we or our customers are unable to implement ourplatform successfully, or are unable to do so in a timely manner, customer perceptions of our platform and company may be impaired, ourreputation and brand may suffer, and customers may choose not to renew or expand the use of our platform.Our customers and third-party resellers may need training in the proper use of our platform to maximize its potential. If our platform is notimplemented or used correctly or as intended, including if customers input incorrect or incomplete financial data into our platform, inadequateperformance may result. Because our customers rely on our platform to manage their financial close and other financial tasks, the incorrect orimproper implementation or use of our platform, our failure to train customers on how to efficiently and effectively use our platform, or our failure toprovide adequate product support to our customers, may result in negative publicity or legal claims against us. Also, as we continue to expand ourcustomer base, any failure by us to properly provide these services will likely result in lost opportunities for additional subscriptions to our platform.31 Any failure to offer high-quality product support may adversely affect our relationships with our customers and our financial results.In deploying and using our solutions, our customers depend on our support services team to resolve complex technical and operationalissues. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for product support. We alsomay be unable to modify the nature, scope and delivery of our product support to compete with changes in product support services provided byour competitors. Increased customer demand for product support, without corresponding revenue, could increase costs and adversely affect ouroperating results. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Anyfailure to maintain high-quality product support, or a market perception that we do not maintain high-quality product support, could adversely affectour reputation, our ability to sell our solutions to existing and prospective customers, our business, operating results, and financial position.If the market for SaaS solutions develops more slowly than we expect or declines, our business would be adversely affected.The market for SaaS solutions is less mature than the market for on-premise software applications, and the adoption rate of SaaS solutionsmay be slower at companies in industries with heightened data security interests or business practices requiring highly customizable applicationsoftware. Many organizations have invested substantial personnel and financial resources to integrate traditional on-premise solutions into theirbusinesses, and therefore may be reluctant or unwilling to purchase SaaS solutions. In addition, some organizations have been reluctant to usecloud-based solutions because they have concerns regarding the risks associated with the reliability or security of the technology delivery modelassociated with these solutions. Because our solutions involve the aggregation, storage and use of confidential information and related data,including highly confidential financial data, some customers may be reluctant or unwilling to migrate to our cloud-based solutions.It is difficult to predict customer adoption rates and demand for our software solutions, the future growth rate and size of the market or theentry of competitive products or services. The expansion of the SaaS solutions market depends on a number of factors, including the cost,performance and perceived value associated with SaaS, as well as the ability of SaaS providers to address data security and privacy concerns.Government agencies have adopted, or may adopt, laws and regulations regarding the collection and use of personal information obtained fromconsumers and other individuals, or may seek to access information on our platform, either of which may reduce the overall demand for ourplatform. If we or other SaaS providers experience data security incidents, loss of customer data, disruptions in delivery, or other problems, themarket for SaaS solutions, including our platform, may be negatively affected. If SaaS solutions do not continue to achieve market acceptance, orthere is a reduction in demand for SaaS solutions caused by a lack of customer acceptance, technological challenges, data security or privacyconcerns, governmental regulation, competing technologies and products, or decreases in information technology spending, it would result indecreased revenue and our business would be adversely affected.Unfavorable conditions in our industry or the global economy could limit our ability to grow our business and negatively affect ouroperating results.Our operating results may vary based on the impact of changes in our industry or the global economy on us or our customers. The revenuegrowth and potential profitability of our business depend on demand for business software applications and services generally and for accountingand finance systems in particular. Weak economic conditions affect the rate of accounting and finance and information technology spending andcould adversely affect our customers’ or potential customers’ ability or willingness to purchase our cloud platform, delay purchasing decisions,reduce the value or duration of their subscription contracts, or affect attrition rates, all of which could adversely affect our operating results. Ifeconomic conditions deteriorate, our customers and prospective customers may elect to decrease their accounting and finance and informationtechnology budgets, which would limit our ability to grow our business and negatively affect our operating results.32 Changes in laws and regulations related to the internet and cloud computing or changes to internet infrastructure may diminish thedemand for our solutions and could have a negative impact on our business.The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication andbusiness applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws orregulations affecting the use of the internet as a commercial medium. Regulators in some industries have also adopted, and may in the futureadopt, regulations or interpretive positions regarding the use of SaaS and cloud computing solutions. For example, some financial servicesregulators have imposed guidelines for the use of cloud computing services that mandate specific controls or require financial services enterprisesto obtain regulatory approval prior to utilizing such software. Changes in these laws or regulations could require us to modify our solutions in orderto comply with these changes. In addition, government agencies or private organizations have imposed and may impose additional taxes, fees orother charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-relatedcommerce or communications generally, or result in reductions in the demand for internet-based solutions and services such as ours. In addition,the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocolsto handle increased demands of internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance ofthe internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms” and similar malicious programs and theinternet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet isadversely affected by these issues, demand for our solutions could decline.We provide service level commitments under our customer contracts, and if we fail to meet these contractual commitments, ourrevenues could be adversely affected.Our customer agreements typically provide service level commitments. If we are unable to meet the stated service level commitments orsuffer extended periods of unavailability for our applications, we may be contractually obligated to provide these customers with service credits,refunds for prepaid amounts related to unused subscription services, or we could face contract terminations. Our revenues could be significantlyaffected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any extended serviceoutages could adversely affect our reputation, revenues and operating results.Seasonality could cause our operating results and financial metrics to fluctuate from quarter to quarter and make them more difficult topredict.We typically add fewer customers in the first quarter of the year than other quarters. We also experience a higher volume of sales at the endof each quarter and year, which is often the result of buying decisions by our customers. Seasonality may be reflected to a much lesser extent,and sometimes may not be immediately apparent, in our revenue, due to the fact that we recognize subscription revenue over the term of ouragreements. We may also increase expenses in a period in anticipation of future revenues. Changes in the number of customers and users indifferent periods will cause fluctuations in our financial metrics and, to a lesser extent, revenues. Those changes and fluctuations in our expenseswill affect our results on a quarterly basis and will make forecasting our future operating results and financial metrics difficult.Our international operations subject us to potentially adverse tax consequences.We report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompanyrelationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxingauthorities may disagree with our determinations as to the value of assets sold or acquired or income and expenses attributable to specificjurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay additional taxes, interest andpenalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower overall profitability of ouroperations. We believe that our financial statements reflect adequate reserves to cover such a contingency, but there can be no assurances inthat regard.33 The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other taxreform policies could materially impact our financial position and results of operations.Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits, as well as changesto U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to expansion of our internationalbusiness activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect ourfinancial position and results of operations.Our ability to use our net operating losses to offset future taxable income may be subject to limitations.As of December 31, 2016, we had federal and State of California net operating loss carryforwards, or NOLs, of $94.7 million and $90.9million, respectively. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoesan “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Our existing NOLs may be subjectto limitations arising from previous ownership changes, and if we undergo an ownership change our ability to utilize NOLs could be further limitedby Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership changeunder Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject tolimitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, ourexisting NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize atax benefit from the use of our NOLs, whether or not we attain profitability.Taxing authorities may successfully assert that we should have collected, or in the future should collect, sales and use, value-added orsimilar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results ofoperations.Sales and use, value-added and similar tax laws and rates vary greatly by jurisdiction and are subject to change from time to time. Somejurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penaltiesand interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future requirements mayadversely affect our results of operations.We might require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.We intend to continue to make investments to support our business growth and may require additional funds to respond to businesschallenges, including the need to develop new features or enhance our existing solutions, improve our operating infrastructure or acquirecomplementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If weraise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution,and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debtfinancing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operationalmatters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.In addition, we may not be able to obtain additional financing on terms favorable to us, or at all. If we are unable to obtain adequate financing orfinancing on terms satisfactory to us, when we require it, our ability to continue to support our business growth and to respond to businesschallenges could be significantly impaired.Natural disasters and other events beyond our control could harm our business.Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the globaleconomy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, powershortages, pandemics, and other events beyond our control. Although we maintain crisis management and disaster response plans, such eventscould make it difficult or impossible for us to deliver our solutions to our customers, and could decrease demand for our solutions. The majority ofour research and development activities, corporate headquarters, information technology systems, and other critical business operations arelocated in California, which has experienced major earthquakes in the past. Significant recovery time could be required to resume operations andour financial condition and operating results could be harmed in the event of a major earthquake or catastrophic event.34 If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.We review our goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value may notbe recoverable. Goodwill is required to be tested for impairment at least annually. As of December 31, 2016, we had goodwill and intangible assetswith a net book value of $239 million related to the acquisitions of BlackLine Systems, Inc. and Runbook. An adverse change in marketconditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to theestimation of fair value that could result in an impairment charge to our goodwill or intangible assets. Any such charges may have a materialnegative impact on our operating results.Risks Related to Ownership of our Common StockThe market price of our common stock may be volatile, and you could lose all or part of your investment.The market price of our common stock since our initial public offering has been and may continue to be subject to wide fluctuations inresponse to various factors, some of which are beyond our control and may not be related to our operating performance. Factors that could causefluctuations in the market price of our common stock include the following: •actual or anticipated fluctuations in our operating results; •the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; •failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securitiesanalysts who follow our company or our failure to meet these estimates or the expectations of investors; •ratings changes by any securities analysts who follow our company; •announcements by us or our competitors of significant technical innovations, acquisitions, strategic relationships, joint ventures, orcapital commitments; •changes in operating performance and stock market valuations of other technology companies generally, or those in our industry inparticular; •price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole; •changes in accounting standards, policies, guidelines, interpretations, or principles; •actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; •developments or disputes concerning our intellectual property, or our products or third-party proprietary rights; •announced or completed acquisitions of businesses or technologies by us or our competitors; •new laws or regulations, or new interpretations of existing laws or regulations applicable to our business; •any major change in our board of directors or management; •sales of shares of our common stock by us or our stockholders; •lawsuits threatened or filed against us; and •other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.In addition, the stock markets, and in particular the market on which our common stock is listed, have experienced extreme price andvolume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock pricesof many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In thepast, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved insecurities litigation, it could subject us to substantial costs, divert resources and the attention of management from operating our business, andadversely affect our business, results of operations, financial condition, and cash flows.35 The Company is controlled by certain of our Principal Stockholders, whose interests may differ from those of other stockholders.As of December 31, 2016, our Principal Stockholders beneficially owned, in the aggregate, approximately 78.5% of our outstanding commonstock and directors affiliated with our Principal Stockholders comprise a majority of our board of directors. Further, we entered into a Stockholders’Agreement with the Principal Stockholders, which provides that the Principal Stockholders will be entitled to designate members of our board ofdirectors. We anticipate that the parties to the Stockholders’ Agreement will agree to vote for these nominees, as well as other directorsrecommended by independent directors constituting a majority of our independent directors in a vote in which only independent directorsparticipate.Under the Stockholders’ Agreement and subject to our amended and restated certificate of incorporation and amended and restated bylawsand applicable law, for so long as the Principal Stockholders collectively own or hold of record, directly or indirectly, in the aggregate at least 40%of their collective “Post-IPO Shares” (as defined in the Stockholders’ Agreement), as adjusted for any reorganization, recapitalization, stockdividend, stock split, reverse stock split, or similar changes in our capitalization, the following actions will require the approval of our board ofdirectors, including the affirmative vote of at least two directors designated by Silver Lake Sumeru: •any voluntary liquidation, winding up or dissolution or any action relating to a voluntary bankruptcy, reorganization or recapitalizationof the company or its subsidiaries; •certain dispositions of assets in excess of $50 million or entry into joint ventures requiring a capital contribution in excess of $50million, in each case, by the company or its subsidiaries; •fundamental changes in the nature of the company’s or its subsidiaries’ existing lines of business or the entry into a new significantline of business; •any amendments to the company’s amended and restated certificate of incorporation and amended and restated bylaws; •incurrence of indebtedness in excess of $150 million; •appointment or termination of the Chief Executive Officer; and •change of control transactions.Following our initial public offering, the Principal Stockholders are able to determine the outcome of all matters requiring stockholderapproval, including mergers and other material transactions, and will be able to cause or prevent a change in the composition of our board ofdirectors or a change in control of our company that could deprive our stockholders of an opportunity to receive a premium for their common stockas part of a sale of our company and might ultimately affect the market price of our common stock.Further, our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, the doctrine of “corporateopportunity” will not apply to Silver Lake Sumeru, Iconiq, their respective affiliates, or the directors they designate, pursuant to their rights underthe Stockholders’ Agreement in a manner that would prohibit them from investing in competing businesses or doing business with our partners orcustomers. Accordingly, these directors will have the rights to pursue business opportunities that may be of interest to the company and whichthey would otherwise need to provide to the company.36 Although we do not expect to rely on the “controlled company” exemption, we are a “controlled company” within the meaning of thestock exchange rules and we qualify for exemptions from certain corporate governance requirements.Because our Principal Stockholders collectively own a majority of our outstanding common stock, we are considered a “controlled company”as that term is set forth in the stock exchange rules. Under these rules, a company of which more than 50% of the voting power is held by anotherperson or group of persons acting together is a “controlled company” and may elect not to comply with certain stock exchange rules regardingcorporate governance, including: •the requirement that a majority of its board of directors consist of independent directors; •the requirement that its director nominees be selected or recommended for the board’s selection by a majority of the board’sindependent directors in a vote in which only independent directors participate or by a nominating committee comprised solely ofindependent directors, in either case, with board resolutions or a written charter, as applicable, addressing the nominations processand related matters as required under the federal securities laws; and •the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing thecommittee’s purpose and responsibilities.These requirements will not apply to us as long as we remain a “controlled company.” Although we qualify as a “controlled company,” we donot expect to rely on this exemption and intend to fully comply with all corporate governance requirements under the stock exchange rules.However, if we were to utilize some or all of these exemptions, you may not have the same protections afforded to stockholders of companies thatare subject to all of the stock exchange rules regarding corporate governance.A substantial number of the outstanding shares of our capital stock are restricted from immediate resale but may be sold in the nearfuture. The large number of shares of our capital stock eligible for public sale or subject to rights requiring us to register them forpublic sale could depress the market price of our common stock.The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market inthe near future, and the perception that these sales could occur may also depress the market price of our common stock. Our executive officers,directors and the holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock haveentered into market standoff agreements with us or lock-up agreements with the underwriters of our initial public offering under which they haveagreed, subject to specific exceptions, not to sell any of our common stock until April 26, 2017. Goldman, Sachs & Co. and J.P. MorganSecurities LLC, however, on behalf of the underwriters, may permit our officers, directors and other stockholders who are subject to these lock-upagreements to sell shares prior to the end of the lock-up period. As a result of these agreements and the provisions of Rule 144 or Rule 701 underthe Securities Act, all shares of our common stock will be available for sale in the public market beginning on April 26, 2017, subject in somecases to the volume and other restrictions of Rule 144 and our insider trading policy.Following the expiration of the market standoff and lock-up agreements referred to above, certain stockholders can require us to registershares of our capital stock owned by them for public sale in the United States. In addition, we filed a registration statement to register shares ofour common stock reserved for future issuance under our equity incentive plans. As a result, subject to the satisfaction of applicable exerciseperiods and expiration of the market standoff agreements and lock-up agreements referred to above, the shares of our common stock issued uponexercise of outstanding options to purchase shares of our common stock will be available for immediate resale in the United States in the openmarket.Sales of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities inthe future at a time and at a price that we deem appropriate. These sales also could cause the market price of our common stock to decline andmake it more difficult for you to sell shares of our common stock.37 Provisions of our corporate governance documents could make an acquisition of the company more difficult and may impede attemptsby our stockholders to replace or remove our current management, even if beneficial to our stockholders.Our amended and restated certificate of incorporation and amended and restated bylaws and the Delaware General Corporation Law, orDGCL, contain provisions that could make it more difficult for a third-party to acquire us, even if doing so might be beneficial to our stockholders.Among other things: •we have authorized but unissued shares of undesignated preferred stock, the terms of which may be established and the shares ofwhich may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or otherrights or preferences superior to the rights of stockholders; •we have a classified board of directors with staggered three-year terms; •stockholder action by written consent will be prohibited from and, after the date on which the Principal Stockholders beneficially own,in the aggregate, less than 35% in voting power of our stock, entitled to vote generally in the election of directors; •for as long as the Principal Stockholders beneficially own, in the aggregate, at least 40% in voting power of our stock entitled to votegenerally in the election of directors, any amendment, alteration, rescission, or repeal of our amended and restated bylaws or ouramended and restated certificate of incorporation by our stockholders will require the affirmative vote of 60% of the voting power ofour stock entitled to vote thereon, voting together as a single class and at any time when the Principal Stockholders beneficially own,in the aggregate, less than 40% in voting power of our stock entitled to vote generally in the election of directors, any amendment,alteration, rescission, or repeal of our amended and restated bylaws or of certain provisions of our amended and restated certificate ofincorporation by our stockholders will require the affirmative vote of the holders of at least 75% of the voting power of our stockentitled to vote thereon, voting together as a single class outstanding; and •stockholders are required to comply with advance notice requirements for nominations for elections to our board of directors or forproposing matters that can be acted upon by stockholders at stockholder meetings; provided, however, that such advance noticeprocedures will not apply to the Principal Stockholders at any time such person or entity owns in the aggregate at least 10% of thevoting power of our stock entitled to vote generally in the election of directors.Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that ourstockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent atransaction involving a change in control of the company, including actions that our stockholders may deem advantageous, or negatively affect thetrading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and otherstockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growthcompanies will make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the federal securities laws, and we may take advantage of exemptions from variousreporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, notbeing required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligationsregarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbindingadvisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predictif investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock lessattractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We will remain an“emerging growth company” until the last day of the fiscal year following the five-year anniversary of the completion of our initial public offering,although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second quarter of a fiscalyear prior to the five-year anniversary, we would cease to be an “emerging growth company” as of the following December 31.38 The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attractand retain executive management and qualified board members.As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the ExchangeAct, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the exchangesand other markets upon which our common stock is listed, and other applicable securities rules and regulations. Compliance with these rules andregulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increasedemand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, amongother things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires,among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintainand, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significantresources and management oversight may be required. We will be required to disclose changes made in our internal control and procedures on aquarterly basis and we will be required to furnish a report by management on, among other things, the effectiveness of our internal control overfinancial reporting for the first fiscal year beginning after the effective date of our initial public offering. However, our independent registered publicaccounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until thelater of the year following our first annual report required to be filed with the SEC, or the date we are no longer an “emerging growth company.” As aresult of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may bediverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additionalemployees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants,which will increase our operating expenses.In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty forpublic companies, increasing legal and financial compliance costs, and making some activities more time-consuming. These laws, regulations andstandards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice mayevolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliancematters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources tocomply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and adiversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with new laws, regulationsand standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice,regulatory authorities may initiate legal proceedings against us and our business may be adversely affectedWe also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director andofficer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factorscould also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committeeand compensation committee, and qualified executive officers.As a result of disclosure of information in the filings required of a public company, our business and financial condition will become morevisible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims aresuccessful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in ourfavor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affectour business and operating results.We do not intend to pay dividends on our common stock, so any returns will be limited to changes in the value of our common stock.We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for thedevelopment, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Anyreturn to stockholders will therefore be limited to the increase, if any, of our stock price, which may never occur.39 If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stockprice and trading volume could decline.The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish aboutus or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for ourcommon stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate orunfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us orfail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and tradingvolume to decline.Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum forcertain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicialforum for disputes with us.Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the sole and exclusiveforum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by anyof our directors, officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provisionof the DGCL, or (4) any action asserting a claim against us that is governed by the internal affairs doctrine shall be a state or federal court locatedwithin the State of Delaware, in all cases subject to the court’s having personal jurisdiction over indispensable parties named as defendants. Anyperson or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented tothis provision. The forum selection clause in our amended and restated bylaws may have the effect of discouraging lawsuits against us or ourdirectors and officers and may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. Item 1B.Unresolved Staff CommentsNot applicable.Item 2.PropertiesOur principal executive offices are located in Los Angeles, California where we occupy approximately 66,000 square feet of space under alease that expires in June 2022. We also occupy additional leased offices located in Chicago, Illinois; Atlanta, Georgia; New York, New York;London, the United Kingdom; Melbourne, Australia; Sydney, Australia; Paris, France; Johannesburg, South Africa; Frankfurt, Germany; KualaLumpur, Malaysia; Vancouver, Canada; Ede, Netherlands; and Singapore. We believe that our properties are generally suitable to meet our needsfor the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be readily available oncommercially reasonable terms.Item 3.Legal ProceedingsFrom time to time, we may be subject to legal proceedings arising in the ordinary course of business. In addition, from time to time, thirdparties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. As of the date ofthis Form 10-K, we are not a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate bereasonably expected to have a material adverse effect on our results of operations, prospects, cash flows, financial position or brand.Item 4.Mine Safety DisclosuresNot applicable. 40 PART II Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket for Our Common Stock and Related Stockholder MattersOur common stock has been traded on the NASDAQ Global Select Market under the symbol “BL” since October 28, 2016. Prior to thattime, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low intraday salesprices for our common stock as reported on the NASDAQ Global Select Market. Fiscal 2016 High Low Fourth Quarter (from October 28, 2016) $28.77 $21.66 On March 3, 2017, the last reported sales price on the NASDAQ Global Select Market for our common stock was $28.60 per share.Holders of RecordAs of March 3, 2017, there were 128 shareholders of record. The number of record holders does not include beneficial holders who holdtheir shares in “street name,” meaning that the shares are held for their accounts by a broker or other nominee. Accordingly, we believe that thetotal number of beneficial holders is higher than the number of our shareholders of record.Dividend PolicyWe have never declared or paid, any cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, tofinance our operations and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determinationas to the declaration and payment of dividends will be at the discretion of our board of directors and will depend on then-existing conditions,including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board ofdirectors may deem relevant.41 Stock Price Performance GraphThis performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, or the SEC, forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under thatSection, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or theSecurities Act.The following graph compares (i) the cumulative total stockholder return on our common stock from October 28, 2016 (the date ourcommon stock commenced trading on the NASDAQ Global Select Market) through December 31, 2016 with (ii) the cumulative total return of theS&P 500 Index and the NASDAQ Computer & Data Processing Index over the same period, assuming the investment of $100 in our commonstock and in both of the other indices on October 28, 2016 and the reinvestment of dividends. The graph uses the closing market price on October28, 2016 of $23.70 per share as the initial value of our common stock. As discussed above, we have never declared or paid a cash dividend onour common stock and do not anticipate declaring or paying a cash dividend in the foreseeable future.COMPARISON OF CUMULATIVE TOTAL RETURN**Returns are based on historical results and are not necessarily indicative of future performance. See the disclosure in Part I, Item 1A. “RiskFactors.”Securities Authorized for Issuance under Equity Compensation PlanThe information required by this item will be included in our Proxy Statement for the 2017 Annual Meeting of Stockholders to be filed withthe SEC within 120 days of the fiscal year ended December 31, 2016, and is incorporated herein by reference.Recent Sales of Unregistered SecuritiesFrom January 1, 2016 through the filing our Registration Statement on Form S-8 on October 28, 2016, we granted to our officers, directors,employees, consultants, and other service providers options to purchase an aggregate of 1,726,745 shares of our common stock under our 2014Equity Incentive Plan at exercise prices ranging from $14.00 to $16.00 per share. During that same period, we issued and sold to 67 employeesand other service providers an aggregate of 512,647 shares of common stock upon exercise of options under our 2014 Equity Incentive Plan at aweighted average exercise price of $5.84 per share for aggregate gross cash proceeds of $2.8 million.42 In September 2016, we sold 192,187 shares of our common stock to Runbook employees at $16.00 per share, for aggregate gross cashproceeds of $3.1 million.None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering.The offers, sales and issuances of the securities described in this Item 5 were deemed to be exempt from registration under the SecuritiesAct under either (1) Rule 701 promulgated under the Securities Act as offers and sales of securities pursuant to certain compensatory benefitplans and contracts relating to compensation in compliance with Rule 701 or (2) Section 4(a)(2) of the Securities Act as transactions by an issuernot involving any public offering. The recipients of securities in each of these transactions represented their intention to acquire the securities forinvestment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the stockcertificates and instruments issued in such transactions. All recipients had adequate access, through their relationships with us, to informationabout us. The sales of these securities were made without any general solicitation or advertising.Use of ProceedsOn October 27, 2016, the Registration Statement on Form S-1 (File No. 333-213899) for our initial public offering was declared effective bythe SEC. On November 2, 2016, we closed our initial public offering and sold 9,890,000 shares of our common stock at a public offering price of$17.00 per share for an aggregate offering price of approximately $168.1 million. Upon completion of the sale of the shares of our common stock,our initial public offering terminated.The underwriters for our initial public offering were Goldman, Sachs & Co., J.P. Morgan Securities LLC, Pacific Crest Securities, a divisionof KeyBanc Capital Markets Inc., Raymond James and Associates, Inc., William Blair & Company, L.L.C. and Robert W. Baird & Co.Incorporated. We paid to the underwriters of our initial public offering underwriting discounts and commissions totaling approximately $11.8 millionand incurred offering expenses of approximately $4.5 million which, when added to other underwriting discounts and commissions, amount to totalexpenses of approximately $16.3 million. Thus, the net offering proceeds, after deducting underwriting discounts and commission and otheroffering expenses, were approximately $151.9 million.There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus, datedOctober 27, 2016, pursuant to Rule 424(b)(4) of the Securities Act. On November 3, 2016, we repaid in full a total of $67.7 million outstanding debtunder our credit facility, which included principal, interest, and prepayment penalties.Issuer Purchases of Equity SecuritiesNone. Item 6.Selected Financial DataOn September 3, 2013, we acquired BlackLine Systems, Inc., which we refer to as the 2013 Acquisition. Prior to the 2013 Acquisition, wehad no significant operations. As a result, the consolidated financial statements for the periods from January 1, 2013 to September 2, 2013 arepresented as BlackLine Systems, Inc., which we refer to as the Predecessor, and all subsequent periods are presented as BlackLine, Inc., whichwe refer to as the Successor. The Successor financial statements reflect a new basis of accounting as a result of the 2013 Acquisition andtherefore are not comparable to the Predecessor financial statements. We refer to the period from January 1, 2013 to September 2, 2013 as the2013 Predecessor Period and the period from September 3, 2013 to December 31, 2013 as the 2013 Successor Period.The consolidated statement of operations data for the years ended December 31, 2016, 2015 and 2014 and the consolidated balance sheetdata at December 31, 2016 and 2015 are derived from, and qualified by reference to, our audited financial statements included elsewhere in thisAnnual Report on Form 10-K. The consolidated statements of operations data for the 2013 Successor period and the consolidated balance sheetdata as of December 31, 2014 and 2013 are derived from our audited financial statements not included in this Annual Report on Form 10-K. Theconsolidated statements of operations data for the 2013 Predecessor periods are derived from the audited financial statements of the Predecessornot included in this Annual Report on Form 10-K.43 The selected consolidated financial data below are not necessarily indicative of future performance and should be read in conjunction withItem 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements andrelated notes thereto included in Item 8 of this Annual Report on Form 10-K.Consolidated Statements of Operations Data (in thousands, except per share data): Year Ended 2013 2013 December 31, Successor Predecessor 2016(1) 2015 2014 Period Period Revenues Subscription and support $117,524 $80,080 $49,029 $7,723 $21,977 Professional services 5,599 3,527 2,648 860 1,407 Total revenues 123,123 83,607 51,677 8,583 23,384 Cost of revenues Subscription and support 25,900 19,773 14,380 4,346 4,442 Professional services 4,311 2,956 2,218 499 1,145 Total cost of revenues(2)(3) 30,211 22,729 16,598 4,845 5,587 Gross profit 92,912 60,878 35,079 3,738 17,797 Operating expenses Sales and marketing(2)(3) 77,810 56,546 31,837 6,895 10,453 Research and development(2) 21,125 18,216 9,705 2,225 4,738 General and administrative(2)(3)(4) 26,329 20,928 11,716 2,827 6,978 Acquisition-related costs 1,582 — — 1,634 5,586 Total operating expenses 126,846 95,690 53,258 13,581 27,755 Loss from operations (33,934) (34,812) (18,179) (9,843) (9,958)Other expense Interest expense, net (5,932) (3,215) (3,047) (781) (22)Change in fair value of the common stock warrant liability (5,880) (420) (3,700) — — Other expense, net (11,812) (3,635) (6,747) (781) (22)Loss before income taxes (45,746) (38,447) (24,926) (10,624) (9,980)Benefit from income taxes (6,587) (13,713) (8,174) (3,954) 21 Net loss $(39,159) $(24,734) $(16,752) $(6,670) $(10,001)Net loss per share, basic and diluted $(0.92) $(0.61) $(0.42) $(0.17) $(0.12)Weighted average common shares outstanding, basic and diluted 42,497 40,579 40,089 40,019 82,250 (1)On August 31, 2016, we completed the Runbook Acquisition. The Runbook Acquisition has been accounted for as a businesscombination. The results of Runbook have been included in our consolidated results of operations for the period subsequent to theacquisition date. See Note 4 of notes to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.(2)The following table presents stock-based compensation included in each respective expense category (in thousands): Year Ended 2013 2013 December 31, Successor Predecessor 2016 2015 2014 Period Period Cost of revenues $715 $466 $249 $— $86 Sales and marketing 2,490 2,418 1,059 — 124 Research and development 809 588 229 — 330 General and administrative 2,512 2,025 480 — 360 $6,526 $5,497 $2,017 $— $90044 (3)The following table presents the amortization of intangible assets included in each respective expense category (in thousands): Year Ended 2013 2013 December 31, Successor Predecessor 2016 2015 2014 Period Period Cost of revenues $6,368 $6,139 $6,139 $2,048 $— Sales and marketing 3,605 3,487 3,487 1,162 — General and administrative 2,532 2,466 2,466 821 — $12,505 $12,092 $12,092 $4,031 $— (4)General and administrative expenses include increases in fair value of contingent consideration of $0.4 million and $41,000 for the yearsended December 31, 2016 and 2015, respectively, and a decrease in fair value of contingent consideration of $0.8 million for the year endedDecember 31, 2014.Consolidated Balance Sheet Data (in thousands): December 31, 2016 2015 2014 2013 Cash and cash equivalents $22,118 $15,205 $25,707 $14,855 Marketable securities 83,130 — — — Total assets 420,437 286,750 285,550 275,025 Deferred revenue 80,360 52,750 34,574 17,328 Deferred revenue, noncurrent 2,373 — — — Capital lease obligations, net of current portion — 558 — — Long-term debt — 28,267 25,673 23,132 Total stockholders' equity 291,410 166,168 183,947 193,852 45 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion of our financial condition and results of operations should be read together with the financial statements and therelated notes set forth in Item 8, “Financial Statements and Supplementary Data.” The following discussion also contains forward-lookingstatements that involve a number of risks and uncertainties. See Part I, “Special Note Regarding Forward-Looking Statements” for a discussion ofthe forward-looking statements contained below and Part I, Item 1A, “Risk Factors” for a discussion of certain risks that could cause our actualresults to differ materially from the results anticipated in such forward-looking statements.OverviewWe have created a comprehensive cloud-based software platform designed to transform and modernize accounting and finance operationsfor organizations of all types and sizes. Our secure, scalable platform supports critical accounting processes such as the financial close, accountreconciliations, intercompany accounting, and controls assurance. By introducing software to automate these processes and to enable them tofunction continuously, we empower our customers to improve the integrity of their financial reporting, increase efficiency in their accounting andfinance processes and enhance real-time visibility into their operations.As of December 31, 2016, we had more than 1,700 customers with over 166,000 users in over 130 countries exclusive of the RunbookAcquisition. Additionally, we continue to build strategic relationships with technology vendors, professional services firms, business processoutsourcers, and resellers.We are a holding company and conduct our operations through our wholly-owned subsidiary, BlackLine Systems, Inc. BlackLine Systems,Inc. funded its business with investments from our founder and cash flows from operations until September 3, 2013, when we acquired BlackLineSystems, Inc. and Silver Lake Sumeru and Iconiq acquired a controlling interest in us, which we refer to as the “2013 Acquisition.” We refer toSilver Lake Sumeru and Iconiq collectively as our “Investors.” The 2013 Acquisition was accounted for as a business combination under GAAPand resulted in a change in accounting basis as of the date of the 2013 Acquisition.Our platform consists of seven core cloud-based products, including Account Reconciliation, Task Management, Transaction Matching,Journal Entry, Variance Analysis, Consolidation Integrity Manager, and Daily Reconciliation. Customers typically purchase these products inpackages that we refer to as solutions, but they have the option to purchase these products individually. Current solutions include ReconciliationManagement and Financial Close Management, as well as, Intercompany Hub and Insights, which were introduced in November 2015.We derived approximately 95% of our revenue from subscriptions to our cloud-based software platform and approximately 5% fromprofessional services for the year ended December 31, 2016. The majority of subscriptions are sold through one-year non-cancellable contracts,with a growing percentage of subscriptions sold through three-year contracts. We price our subscriptions based on a number of factors, primarilythe number of users having access to the products and the number of products purchased by the customer. Subscription revenue is recognizedratably over the term of the customer agreement. The first year of subscription fees are typically payable within 30 days after execution of acontract, and thereafter upon renewal.Professional services consist of implementation and consulting services. Although our platform is ready to use immediately after a newcustomer has access to it, we typically help customers implement our solutions for a fixed fee, which is initially recorded as deferred revenue andrecognized on a proportional performance basis as the services are performed. We also provide consulting services to help customers optimizethe use of our products. We charge customers for our consulting services on a time-and-materials basis and we recognize that revenue asservices are performed.We typically invoice customers annually in advance for annual and multi-year subscriptions and invoice in advance or on a time-and-materials basis for professional services. We record amounts invoiced for portions of annual subscription periods that have not occurred orservices that have not been performed as deferred revenue on our consolidated balance sheet.We sell our platform primarily through our direct sales force, which leverages our relationships with technology vendors, professionalservices firms and business process outsourcers. In particular, we have a strategic relationship with SAP. Our solution is an SAP-endorsedbusiness solution that integrates with SAP’s ERP solutions. Under our agreement with SAP, which we entered into in 2013, we pay SAP a feebased on a percentage of revenues from our new customers that use an SAP ERP system. We continue to pay SAP a fee for these customersover the term of their subscription46 agreements. For the year ended December 31, 2016, revenues from our customers under this agreement accounted for $20.7 million, orapproximately 17%, of our total revenues. For the year ended December 31, 2015, revenues from our customers under this agreement accountedfor $9.4 million, or approximately 11%, of our total revenues. Additionally, we are expanding our channel of resellers, particularly in marketsoutside of the United States.We target our sales and marketing efforts at both enterprise and mid-market businesses. We define the enterprise market as companieswith greater than $500 million in annual revenue, and we define mid-market as companies with between $50 and $500 million in annual revenue.For the year ended December 31, 2016, sales to enterprise and mid-market customers represented 85% and 15% of our revenues, respectively.For the years ended December 31, 2015 and 2014, sales to enterprise customers represented 86% and 90% of our revenues, respectively, whilesales to mid-market customers represented 14% and 10% of our revenues, respectively. Additionally, we target our efforts at both new customersand existing customers. Existing customers may renew their subscriptions and broaden the deployment of our platform across their organizationsby increasing the number of users accessing our platform or by adding additional products. We have historically signed a higher percentage ofagreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year and usually during thelast month of the quarter. This can be attributed to buying patterns typical in the software industry. As the terms of most of our customeragreements are measured in full year increments, agreements initially entered into the fourth quarter or last month of any quarter will generallycome up for renewal at that same time in subsequent years. This seasonality is reflected in our revenues, though the impact to overall annual orquarterly revenues is minimal due to the fact that we recognize subscription revenue ratably over the term of the customer contract.We believe the addressable market for our platform is large and growing. According to a study we commissioned with Frost & Sullivan, in2015, there were more than 165,000 corporate organizations worldwide that are in our addressable market with revenues greater than $50 million.As a result, we expect to continue to grow our direct sales team and to expand our relationships with technology vendors, professional servicesfirms, business process outsourcers, and resellers. We also intend to continue to invest in research and development to extend the functionality ofour platform and develop new solutions and features.For the years ended December 31, 2016, 2015 and 2014, we had revenues of $123.1 million, $83.6 million and $51.7 million respectively,and we incurred net losses of $39.2 million, $24.7 million and $16.8 million, respectively.On November 2, 2016, we completed our initial public offering and raised net proceeds of approximately $151.9 million and used $67.7million of the proceeds to repay all amounts outstanding under our credit facility.Runbook AcquisitionOn August 31, 2016, we completed our acquisition of Runbook Company B.V., or Runbook, a Netherlands-based provider of financial closeautomation software and integration solutions for SAP customers, or the Runbook Acquisition. We acquired Runbook to enhance the connectivityand integration of our platform to SAP and other systems. We believe this acquisition enhances our position as a leading provider of softwaresolutions to automate the financial close process for SAP customers and supports our European expansion strategy.The aggregate purchase consideration of $34.1 million for the Runbook Acquisition, which is subject to final working capital workingadjustments, was paid in cash on the acquisition date. The estimated purchased working capital included approximately $2.6 million in cash. Weamended our credit facility to add an additional term loan pursuant to which we borrowed $30.0 million and used the proceeds and cash on hand tofund the acquisition. In connection with our initial public offering, we repaid all amounts outstanding under the term loan. We incurred $1.6 millionin transaction costs and fees to complete the Runbook Acquisition.Runbook’s revenues consist of license fees associated with the sale of its on-premise software, post-contract support, and professionalservices required to implement its solutions and train its customers.Factors Affecting PerformanceWe believe that our future performance will depend on many factors, including those described below. While these areas present significantopportunity, they also present risks that we must manage to achieve successful results. See Part I, Item 1A, “Risk Factors.” If we are unable toaddress these challenges, our business and operating results could be adversely affected.47 Expansion and Further Penetration of Our Customer Base. We employ a “land-and-expand” sales strategy that focuses on efficientlyacquiring new customers and growing our relationships with existing customers over time. As the chart below illustrates, we have a history ofattracting new customers and expanding their revenue with us over time. Building upon this success, we believe significant opportunity exists forus to acquire new customers in both the enterprise and mid-market segments across all geographies, as well as expand the use of our platform byselling additional products and increasing the number of users within our current customers’ organizations. The chart reflects annualized subscription and support revenue for the group of customers that became our customers in each respectivecohort year. A “cohort” is a grouping of customers by the year specified. For instance, the 2012 cohort includes all customers whose contract startdate is between January 1, 2012 and December 31, 2012. We calculate annualized subscription and support revenue at a particular date as thetotal amount of minimum subscription and support revenue contractually committed under each of our customer agreements for that month throughthe remaining term of the agreement, divided by the remaining number of months in the term of the agreement, multiplied by twelve. Ourannualized subscription and support revenue as of December 31, 2016 for each of our 2012, 2013, 2014, 2015, and 2016 customer cohortsrepresented an increase over the initial annualized subscription and support revenue for such customer cohorts of 3.0x, 2.3x, 1.9x, 1.5x, and 1.2x,respectively. We calculate initial annualized subscription and support revenue for any given cohort year as the sum of annualized subscription andsupport revenue as of the first month of each customer agreement that was entered into within that given cohort year. Accordingly, in contrast toannualized subscription and support revenue, initial annualized subscription and support revenue does not reflect any changes in the paymentsdue under or the duration of customer agreements following the first month of the customer agreement. The above chart excludes the impact ofthe Runbook Acquisition.Investment in Growth. We plan to continue to invest in our business so that we can capitalize on our market opportunity. We intend tocontinue to grow our global sales and marketing team to acquire new customers and to increase sales to existing customers. We intend tocontinue to grow our research and development team to extend the functionality and range of our applications to bring new and improved solutionsto accounting and finance. However, we expect our48 sales and marketing expenses and research and development expenses as a percentage of revenues to decrease over time as we grow ourrevenues and gain economies of scale by increasing our customer base and increase sales to our existing customer base. We believe that theseinvestments will contribute to our long-term growth, although they may adversely affect our profitability in the near term.Leveraging Strategic Relationships. We plan to continue to strengthen and expand our relationships with technology vendors,professional services firms, business process outsourcers, and resellers. These relationships enable us to increase the speed of deployment andoffer a wider range of integrated services to our customers. We intend to support these existing relationships, seek additional relationships andfurther expand our channel of resellers to help us increase our presence in existing markets and to expand into new markets. Our business andresults of operations will be significantly affected by our success in leveraging and expanding these relationships.Market Adoption of Our Platform. A key focus of our sales and marketing efforts is creating market awareness about the benefits of ourcloud-based SaaS platform. The market for SaaS solutions for accounting and finance is less mature than the market for on-premise accountingand finance software applications, and potential customers may be slow or unwilling to migrate from their legacy solutions such as spreadsheets,manual processes or home grown solutions. It is difficult to predict customer adoption rates and demand, the future growth rate and size of theSaaS platform for accounting and finance market or the entry of competitive solutions. Our business and operating results will be significantlyaffected by the degree to, and speed with, which organizations adopt our solutions.Key MetricsWe regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identifytrends affecting our business, formulate financial projections, and make strategic decisions. Each of the metrics below exclude the impact of theRunbook Acquisition. Year Ended December 31, 2016 2015 2014 Dollar-based net revenue retention rate 116% 120% 118%Number of customers (as of end of period) 1,758 1,338 987 Number of users (as of end of period) 166,903 128,726 93,665 Dollar-based net revenue retention rate. We believe that dollar-based net revenue retention rate is an important metric to measure thelong-term value of customer agreements and our ability to retain and grow our relationships with existing customers over time. We calculate dollar-based net revenue retention rate as the implied monthly subscription and support revenue at the end of a period for the base set of customers fromwhich we generated subscription revenue in the year prior to the calculation, divided by the implied monthly subscription and support revenue oneyear prior to the date of calculation for that same customer base. This calculation does not reflect implied monthly subscription and supportrevenue for new customers added during the one-year period but does include the effect of customers who terminated during the period. We defineimplied monthly subscription and support revenue as the total amount of minimum subscription and support revenue contractually committed to,under each of our customer agreements over the entire term of the agreement, divided by the number of months in the term of the agreement.Number of customers. We believe that our ability to expand our customer base is an indicator of our market penetration and the growthof our business. We define a customer as an entity with an active subscription agreement as of the measurement date. In situations where anorganization has multiple subsidiaries or divisions, each entity that is invoiced as a separate entity is treated as a separate customer. However,where an existing customer requests its invoice be divided for the sole purpose of restructuring its internal billing arrangement without anyincremental increase in revenue, such customer continues to be treated as a single customer. For the years ended December 31, 2016, 2015 and2014, no single customer accounted for more than 10% of our total revenues.Number of users. Since our customers generally pay fees based on the number of users of our platform within their organization, webelieve the total number of users is an indicator of the growth of our business.49 Key Components of our Results of OperationsRevenuesSubscription and support. The majority of subscriptions are sold through one-year non-cancellable contracts and a growing percentageof subscriptions are sold through three-year contracts. Fees are based on a number of factors, including the number of users having access to theproducts and the number of products purchased by the customer. The first year of subscription fees are typically payable within 30 days afterexecution of a contract, and thereafter upon renewal. We initially record the subscription fees as deferred revenue and recognize revenue on astraight-line basis over the term of the agreement. At any time during the subscription period, customers may increase their number of users andadd products. Additional fees are payable for the remainder of the initial or renewed contract term. Customers may only reduce their number ofusers or subscription to products upon renewal of their arrangement. Revenues from subscriptions to our cloud-based software platform comprisedapproximately 95% of our revenues for the year ended December 31, 2016.Subscription and support revenues also include revenues associated with sales of on-premise software licenses and related support. Priorto our migration to SaaS in 2012, we licensed our legacy on-premise software. We no longer develop any new applications or functionality for ourlegacy on-premise software, but we continue to provide post-contract support to five customers that had not migrated to our SaaS solution as ofDecember 31, 2016.On August 31, 2016, we acquired Runbook. We plan to migrate Runbook’s licensed products to a cloud-based platform, but we continue tosell Runbook’s on-premise software to existing Runbook customers and provide post-contract support and implementation services.Revenues recognized from sales of software licenses, support and implementation services related to software arrangements comprisedless than 1%, 1% and 3% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively.Professional services. We offer our customers implementation and consulting services. Although our platform is ready to useimmediately after a new customer has access to it, we typically help customers implement our solutions for a fixed fee and we recognize revenueover the period such services are performed. We also provide consulting and training services to help customers optimize the use of our products.We charge customers for our consulting and training services on a time-and-materials basis and we recognize revenue as services are performed.Professional services revenues comprised approximately 5% of our revenues for the year ended December 31, 2016.For a description of our revenue accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Critical Accounting Policies and Estimates.”Cost of RevenuesSubscription and support cost of revenues. Subscription and support cost of revenues primarily consists of amortization of developedtechnology costs resulting from the 2013 Acquisition and the Runbook Acquisition, salaries, benefits and stock-based compensation associatedwith our hosting operations and support personnel, data center costs related to hosting our cloud-based software, and amortization of capitalizedinternal-use software costs. We also allocate a portion of overhead to subscription and support cost of revenues.Professional services costs of revenues. Costs associated with providing professional services primarily consist of salaries, benefitsand stock-based compensation associated with our implementation personnel. These costs are expensed as incurred when the services areperformed. We also allocate a portion of overhead to professional services cost of revenues.Operating ExpensesSales and marketing. Sales and marketing expenses consist primarily of personnel costs of our sales and marketing employees,including salaries, sales commissions and incentives, benefits and stock-based compensation expense, travel and related costs, commissionspaid in connection with our strategic relationships, outside consulting fees, marketing programs, including lead generation, costs of our annualconference, advertising, and trade shows, other event expenses, and allocated overhead costs. We defer sales and partner commissions andamortize them ratably over the term of the corresponding subscription agreement. Sales and marketing expenses also include amortization ofcustomer relationship intangible assets. We expect sales and marketing expenses will increase as we expand our direct sales teams and increasesales through our strategic relationships and resellers.50 Research and development. Research and development expenses consist primarily of salaries, benefits and stock-based compensationassociated with our engineering, product and quality assurance personnel and allocated overhead costs. Research and development expensesalso include the cost of third-party contractors. Other than internal-use software development costs that qualify for capitalization, research anddevelopment costs are expensed as incurred. We expect research and development costs to increase as we develop new solutions and makeimprovements to our existing platform.General and administrative. General and administrative expenses consist primarily of salaries, benefits and stock-based compensationassociated with our executive, finance, legal, human resources, compliance, and other administrative personnel, accounting, auditing and legalprofessional services fees, recruitment costs, other corporate-related expenses, and allocated overhead costs. General and administrativeexpenses also include amortization of covenant not to compete and tradename intangible assets, as well as acquisition-related costs to businesscombinations and the change in fair value of contingent consideration. We expect that general and administrative expenses will increase as weincur the costs of compliance associated with being a publicly-traded company, including legal, audit and consulting fees.Interest Income (Expense)Interest income (expense), net consists primarily of interest expense from borrowings under our credit facility and amortization of debtdiscounts and issuance costs. We repaid in full all outstanding debt and terminated our credit facility in November 2016. In connection with thetermination of our credit facility, we expensed the then-unamortized debt discounts and issuance costs.Change in Fair Value of Common Stock Warrant LiabilityWe issued warrants to purchase common stock in connection with our credit facility. The warrants are measured at fair value each period,with changes in fair value recorded in our consolidated statement of operations. The warrants will continue to be measured at fair value each perioduntil the earlier of their exercise or termination. Increases in the fair value of our common stock will result in an increase in the fair value of ourcommon stock warrant liability and a corresponding increase in our net loss.Benefit from Income TaxesWe are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. As of December 31, 2016, we werein a net deferred tax liability position primarily as a result of intangible assets acquired in the Runbook Acquisition. This deferred tax liability andthe deferred tax liabilities previously recorded as a result of the 2013 Acquisition have been an available source of income to realize our losses inforeign and U.S. jurisdictions and accordingly, we have recorded an income tax benefit in our statement of operations.We record a valuation allowance against our deferred tax assets to the extent that realization of the deferred tax assets, includingconsideration of our deferred tax liabilities, is not more likely than not. For the year ended December 31, 2016, for both federal and state incometaxes, our deferred assets exceeded our deferred tax liabilities and because of our recent history of operating losses we believe that the realizationof the deferred tax assets is currently not more likely than not. Accordingly, we have recorded a valuation allowance against our federal and statedeferred tax assets. Taxes for international operations are not material for the years ended December 31, 2016, 2015 and 2014.Our effective tax rate for the periods presented differs from the U.S. federal tax rate of 34% due primarily to the valuation allowance on ourfederal and state net deferred tax assets, expenses not deductible for income tax purposes including the change in fair value of common stockwarrants, state taxes, acquisition related costs, and other tax credits.51 Non-GAAP Financial MeasuresIn addition to our results determined in accordance with GAAP, we believe the non-GAAP measures below are useful to us and ourinvestors in evaluating our business. These non-GAAP financial measures are useful because they provide consistency and comparability with ourpast performance, facilitate period-to-period comparisons of operations and facilitate comparisons with other peer companies, many of which usesimilar non-GAAP financial measures to supplement their GAAP results. Year Ended December 31, 2016 2015 2014 (in thousands, except percentages) Non-GAAP Revenues $123,839 $83,607 $56,629 Non-GAAP Gross Profit $100,711 $67,483 $46,419 Non-GAAP Gross Margin 81.3% 80.7% 82.0%Non-GAAP Net Loss $(16,478) $(20,114) $(2,550) Non-GAAP Revenues. Non-GAAP revenues are defined as GAAP revenues adjusted for the impact of purchase accounting resulting fromthe 2013 Acquisition and the Runbook Acquisition. Upon the completion of the 2013 Acquisition and the Runbook Acquisition, deferred revenuewas recorded at fair value, resulting in a reduction from its then carrying value. The reduction associated with the 2013 Acquisition resulted inreduced revenue for the year ended December 31, 2014 and the reduction associated with the Runbook Acquisition resulted in reduced revenue forthe year ended December 31, 2016. We believe that presenting non-GAAP revenues is useful to investors as it eliminates the impact of thepurchase accounting adjustment to revenues to allow for a direct comparison of revenues between periods.Non-GAAP Gross Profit and Non-GAAP Gross Margin. Non-GAAP gross profit is defined as non-GAAP revenues less GAAP cost ofrevenue adjusted for the impact of purchase accounting resulting from the 2013 Acquisition and the Runbook Acquisition, the amortization ofacquired developed technology resulting from the 2013 Acquisition and the Runbook Acquisition, and stock-based compensation. Non-GAAPgross margin is defined as non-GAAP gross profit divided by non-GAAP revenues. We believe that presenting non-GAAP gross margin is useful toinvestors as it eliminates the impact of certain non-cash expenses and allows a direct comparison of gross margin between periods.Non-GAAP Net Loss. Non-GAAP net loss is defined as GAAP net loss adjusted for the impact of the benefit from income taxes that wewere able to recognize as a result of the deferred tax liabilities associated with the intangible assets established upon the 2013 Acquisition and theRunbook Acquisition, the impact of purchase accounting to revenues resulting from the 2013 Acquisition and the Runbook Acquisition,amortization of acquired intangible assets resulting from the 2013 Acquisition and the Runbook Acquisition, stock-based compensation, accretionand write-off of debt discount pertaining to our credit facility, accretion and write-off of warrant discount relating to warrants issued in connectionwith our credit facility, the change in the fair value of contingent consideration, the change in fair value of the common stock warrant liability andacquisition-related costs for the Runbook Acquisition. We believe that presenting non-GAAP net loss is useful to investors as it eliminates theimpact of items that have been impacted by the 2013 Acquisition and the Runbook Acquisition, purchase accounting and other related costs inorder to allow a direct comparison of net loss between current and future periods.52 Reconciliation of Non-GAAP Financial MeasuresThe following table presents a reconciliation of revenues, gross profit, gross margin, and net loss, the most comparable GAAP measures, tonon-GAAP revenues, non-GAAP gross profit, non-GAAP gross margin and non-GAAP net loss: Year Ended December 31, 2016 2015 2014 (in thousands, except percentages) Non-GAAP Revenues Revenues $123,123 $83,607 $51,677 Purchase accounting adjustment to revenues 716 — 4,952 Total Non-GAAP Revenues $123,839 $83,607 $56,629 Non-GAAP Gross Profit: Gross profit $92,912 $60,878 $35,079 Purchase accounting adjustment to revenues 716 — 4,952 Amortization of developed technology 6,368 6,139 6,139 Stock-based compensation expense 715 466 249 Total Non-GAAP Gross Profit $100,711 $67,483 $46,419 Gross Margin 75.5% 72.8% 67.9%Non-GAAP Gross Margin 81.3% 80.7% 82.0%Non-GAAP Net Loss: Net Loss $(39,159) $(24,734) $(16,752)Benefit from income taxes (6,956) (13,934) (8,282)Purchase accounting adjustment to revenues 716 — 4,952 Amortization of intangibles 12,505 12,092 12,092 Stock-based compensation expense 6,526 5,497 2,017 Accretion and write-off of debt discount 1,303 228 228 Accretion and write-off of warrant discount 754 276 276 Change in fair value of contingent consideration 371 41 (781)Change in fair value of the common stock warrant liability 5,880 420 3,700 Acquisition related costs 1,582 — — Total Non-GAAP Net Loss $(16,478) $(20,114) $(2,550) Results of OperationsWe accounted for the 2013 Acquisition and the Runbook Acquisition as business combinations. The 2013 Acquisition and the RunbookAcquisition resulted in the following principal impacts on our consolidated financial statements: •A reduction in revenues for the year ended December 31, 2014 as a result of the deferred revenue at the 2013 Acquisition date beingrecorded at fair value at an amount less than its then carrying value; •Increased amortization costs resulting from recording of intangible assets at fair value. We record amortization of acquired developedtechnology in cost of revenues, amortization of customer relationships in sales and marketing expenses, and amortization ofcovenants not to compete and tradename intangible assets in general and administrative expenses; •Shortly after the 2013 Acquisition, we issued debt, which increased our interest expense for the periods post-2013 Acquisition. Wefinanced the purchase of the Runbook Acquisition through a term loan which increased our interest expense for the period through thetermination of the credit facility. In November 2016, we repaid our credit facility in full with the proceeds from our initial publicoffering. •Increased operating costs in 2016 as a result of the employees and contractors assumed in the Runbook Acquisition.53 Comparison of Years Ended December 31, 2016, 2015 and 2014Total revenues Year Ended December 31, 2016 2015 2014 (in thousands) Subscription and support $117,524 $80,080 $49,029 Professional services 5,599 3,527 2,648 Total revenues 123,123 83,607 51,677 Year Ended December 31, 2016 2015 2014 Number of customers (as of end of period)* 1,758 1,338 987 Number of users (as of end of period)* 166,903 128,726 93,665 *Exclusive of the Runbook AcquisitionTotal revenues increased by $39.5 million, or 47.3%, and $31.9 million, or 61.8%, for the years ended December 31, 2016 and 2015,respectively, as compared to the corresponding 2015 and 2014 periods, respectively, primarily due to an increase in the number of customers, anincrease in the number of users added by existing customers and an increase in the number of products purchased by existing customers. Thetotal number of customers increased by 31.4% and 35.6% during the years ended December 31, 2016 and 2015, respectively. The total number ofusers increased by 29.7% and 37.4% during the years ended December 31, 2016 and 2015, respectively.The increase in total revenues from the year ended December 31, 2014 to December 31, 2015 was also impacted by purchaseaccounting. In connection with the 2013 Acquisition, deferred revenue was recorded at fair value, resulting in a reduction from its then-carryingvalue. This reduction resulted in reduced revenue in the 2014 period by $5.0 million. There was no corresponding reduction in the 2015period. Excluding the impact of this purchase accounting adjustment, our total revenue increased by 47.6% for the year ended December 31,2015 as compared to 2014.Total cost of revenues Year Ended December 31, 2016 2015 2014 (in thousands, except percentages) Subscription and support $25,900 $19,773 $14,380 Professional services 4,311 2,956 2,218 Total cost of revenues 30,211 22,729 16,598 Gross Margin 75.5% 72.8% 67.9% Total cost of revenues increased by $7.5 million, or 32.9%, in 2016 as compared to 2015, primarily due to a $5.6 million increase in salaries,benefits and stock-based compensation and a $0.8 million increase in amortization of capitalized software costs. Salaries, benefits and stock-based compensation increased primarily due to growth in headcount, which increased by 45% between December 31, 2015 and2016. Amortization of our capitalized software development costs increased due to larger total capitalized costs as we expanded the functionalityof our solutions.Total cost of revenues increased by $6.1 million, or 36.9%, in 2015 as compared to 2014, primarily due to a $4.0 million increase in salaries,benefits and stock-based compensation, a $1.1 million increase in data center costs and a $0.6 million increase in amortization of capitalizedsoftware costs. Salaries, benefits and stock-based compensation increased primarily due to growth in headcount, which increased by 69%between December 31, 2014 and 2015. Costs associated with our datacenter increased due to costs of additional bandwidth associated with thegrowth in our customer base. Amortization of our capitalized software development costs increased due to larger total capitalized costs as weexpanded the functionality of our solutions.54 Our gross margin was 75.5%, 72.8% and 67.9% for the years ended December 31, 2016, 2015 and 2014, respectively. The improvement ingross margin in 2016 compared to 2015 was primarily the result of amortization of developed technology associated with the 2013 Acquisition andincluded in our cost of revenues, which is a fixed cost each period. Accordingly, an increase in revenues resulted in an improvement in our grossmargin. The improvement in gross margin was partially offset by the amortization expense of acquired developed technology associated with theRunbook Acquisition in August 2016. The improvement in gross margin in 2015 compared to 2014 was primarily the result of the impact of purchasing accounting adjustments,which reduced revenue in the 2014 period with no corresponding adjustments in 2015. In addition, the increase in gross margin in 2015 comparedto 2014 was impacted by the amortization of developed technology included in our cost of revenues, which is a fixed cost each period.Sales and marketing Year Ended December 31, 2016 2015 2014 (in thousands, except percentages) Sales and marketing $77,810 $56,546 $31,837 Percentage of total revenues 63.2% 67.6% 61.6% Sales and marketing expenses increased by $21.3 million, or 37.6%, for the year ended December 31, 2016 primarily due to a $12.2 millionincrease in salaries, sales commissions and incentives and stock-based compensation, a $3.0 million increase in commissions expense for thirdparties that refer customers to us, a $1.1 million increase in travel and related costs, a $1.1 million increase in advertising and trade shows, and a$0.7 million increase in outside consulting fees. The increase in salaries, sales commissions and incentives and stock-based compensation wasprimarily driven by an increase in headcount and revenue growth. Our sales and marketing headcount increased by 31% between December 31,2015 and 2016. The increase in commissions payable to third parties was primarily driven by revenue growth associated with our relationship withSAP as an endorsed business solution. The increase in advertising and trade shows was primarily due to an increase in our marketingefforts. The increase in consulting fees was primarily due to an increase in digital marketing services.Sales and marketing expenses increased by $24.7 million, or 77.6%, for the year ended December 31, 2015 primarily due to a $16.4 millionincrease in salaries, sales commissions and incentives and stock-based compensation, a $2.4 million increase in commissions payable to thirdparties that refer customers to us, a $1.6 million increase in travel and related costs, a $1.0 million increase in advertising and trade shows, and a$0.9 million increase in outside consulting fees. The increase in salaries, sales commissions and incentives and stock-based compensation wasprimarily driven by an increase in headcount and revenue growth. Our sales and marketing headcount increased by 59% between December 31,2014 and 2015. The increase in commissions payable to third parties was primarily driven by the expansion of our relationships with technologyvendors, including SAP. The increase in advertising and trade shows was primarily due to an increase in our marketing efforts. The increase inoutside consulting fees was primarily due to an increase in digital marketing services.Research and development Year Ended December 31, 2016 2015 2014 (in thousands, except percentages) Research and development $21,125 $18,216 $9,705 Percentage of total revenues 17.2% 21.8% 18.8% Research and development expenses increased by $2.9 million, or 16.0%, for the year ended December 31, 2016 primarily due to a $2.5million increase in salaries, benefits and stock-based compensation due to an increase in headcount and a $1.2 million increase in servicesprovided by third-party contractors. These increases were partially offset by an increase in capitalized costs related to software development of$1.1 million. Our research and development headcount increased by 38% between December 31, 2015 and 2016. Costs of third-party contractorsincreased by 27% between 2015 and 2016. The additional headcount and number of third-party contractors were used to further maintain, enhanceand develop our platform.55 Research and development expenses increased by $8.5 million, or 87.7%, for the year ended December 31, 2015 primarily due to a $5.5million increase in salaries, benefits and stock-based compensation due to an increase in headcount and a $3.2 million increase in servicesprovided by third-party contractors. These increases were partially offset by an increase in capitalized costs related to software development of$0.7 million. Our research and development headcount increased by 32% between December 31, 2014 and 2015. Costs of third-party contractorsincreased by 238% between 2014 and 2015. The additional headcount and number of third-party contractors were used to further maintain,enhance and develop our platform.General and administrative Year Ended December 31, 2016 2015 2014 (in thousands, except percentages) General and administrative $27,911 $20,928 $11,716 Percentage of total revenues 22.7% 25.0% 22.7% General and administrative expenses increased by $7.0 million, or 33.4%, during the year ended December 31, 2016 primarily due to a $3.9million increase in salaries, benefits and stock-based compensation due to an increase in headcount of 30% between December 31, 2015 and2016, a $0.9 million increase in computer software expenses, a $0.5 million increase in professional services costs due primarily to a $1.6 millionincrease in legal, accounting and auditing fees related to the Runbook Acquisition largely offset by a reduction of $1.1 million in initial publicoffering readiness fees and recruitment costs, and a $0.4 million increase in foreign exchange transaction losses due to the strengthening of theU.S. Dollar. In addition, our general and administrative costs in 2016 increased by $0.3 million relating to the change in fair value of contingentconsideration. There was no significant change in contingent consideration during 2015.General and administrative expenses increased by $9.2 million, or 78.6%, during the year ended December 31, 2015 primarily due to a $4.0million increase in salaries, benefits and stock-based compensation due to an increase in headcount of 72% between December 31, 2014 and2015 and stock option grants to new executive officers and other employees, a $2.8 million increase in professional services costs due to legal,accounting and auditing fees as we prepared for our initial public offering, additional recruitment costs, and a $0.5 million increase in facility-relatedexpenses related to the expansion of our global headquarters. In addition, our general and administrative costs in 2014 were reduced by $0.8million relating to the change in fair value of contingent consideration. There was no significant change in contingent consideration during 2015.Interest expense, net Year Ended December 31, 2016 2015 2014 (in thousands) Interest expense, net $(5,932) $(3,215) $(3,047) Interest expense, net increased by $2.7 million, or 84.5%, during the year ended December 31, 2016 primarily due to a $1.6 million increasein the accretion and write-off of debt issuance costs associated with borrowings under our credit facility, a $0.7 million prepayment penalty for earlytermination of our credit facility, and a $0.6 million increase in interest expense primarily due to a $30.0 million term loan under our credit facilityissued to fund the Runbook Acquisition in August 2016. These increases were offset by a $0.2 million increase in interest income earned in2016. Interest expense, net increased by $0.2 million, or 5.5%, during the year ended December 31, 2015 due to an increase in interest expenseon a larger long-term debt principal balance. During the year ended December 31, 2015, we paid between 20% and 30% of our interest costs incash and the remainder increased the principal balance.56 Change in fair value of common stock warrant liability Year Ended December 31, 2016 2015 2014 (in thousands) Change in fair value of common stock warrant liability $(5,880) $(420) $(3,700) We value our common stock warrants using a binomial lattice model. The primary input into the binomial lattice model is the fair value of ourcommon stock. The fair value of our common stock increased by approximately 84% between December 31, 2015 and December 31, 2016,resulting in a $5.9 million, or 107%, increase in our common stock warrant liability. The fair value of our common stock did not significantly change between December 31, 2014 and December 31, 2015.Benefit from income taxes Year Ended December 31, 2016 2015 2014 (in thousands) Benefit from income taxes $(6,587) $(13,713) $(8,174) Our effective tax rate was 14.4% in 2016, 35.7% in 2015, and 32.8% in 2014. The effective tax rate differs from the U.S. federal statutoryrate of 34% in 2016 primarily because of our full valuation allowance on our federal and state deferred tax assets, expenses not deductible forincome tax purposes including the change in fair value of common stock warrants, state taxes net of federal benefit, acquisition-related costs, andother tax credits. We record a valuation allowance against our deferred tax assets to the extent that realization of the deferred tax assets,including consideration of our deferred tax liabilities, is not more likely than not. For 2016, our federal and state deferred tax assets exceeded ourdeferred tax liabilities and given our cumulative losses, we believe that it is not more likely than not that these deferred tax assets will berealized. Accordingly, we recorded a valuation allowance on our net deferred tax assets. In 2015, we recorded a valuation allowance on our Stateof California deferred tax assets as these deferred tax assets exceeded our State of California deferred tax liabilities. Taxes for our internationaloperations were not material in 2016, 2015 and 2014.Liquidity and Capital ResourcesAt December 31, 2016, our principal sources of liquidity were $105.2 million of cash and cash equivalents and marketable securities, whichprimarily consist of short-term, investment-grade commercial paper, corporate bonds, U.S. treasury bonds, and asset-backed securities. Webelieve our existing cash and cash equivalents, investments in marketable securities and cash from operations will be sufficient to meet ourworking capital needs, capital expenditures and financing obligations for at least the next 12 months.Our future capital requirements will depend on many factors, including our growth rate, the expansion of our direct sales force, strategicrelationships and international operations, the timing and extent of spending to support research and development efforts, and the continuingmarket acceptance of our solutions. We may require additional equity or debt financing. Sales of additional equity could result in dilution to ourstockholders. If we raise funds by borrowing from third parties, the terms of those financing arrangements would require us to incur additionalinterest expense and may include negative covenants or other restrictions on our business that could impair our operating flexibility. We canprovide no assurance that additional financing will be available at all or, if available, that we could be able to obtain financing on terms favorable tous. If we are unable to raise additional capital when needed, we would be required to curtail our operating activities and capital expenditures, andour business, operating results and financial condition would be adversely affected.57 Historical Cash FlowsThe following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31, 2016 2015 2014 (in thousands) Net cash provided by (used in) operating activities $(4,808) $1,006 $8,943 Net cash used in investing activities (119,674) (12,367) (2,866)Net cash provided by financing activities 131,395 859 4,775 Net Cash Provided by (Used In) Operating ActivitiesOur net loss and cash flows from operating activities are significantly influenced by our investments in headcount and infrastructure tosupport anticipated growth. In addition, our net loss in recent periods has generally been significantly greater than our use of cash for operatingactivities due to our subscription-based revenue model in which billings occur in advance of revenue recognition and a substantial amount of non-cash charges incurred by us, primarily related to the depreciation and amortization, stock-based compensation, non-cash interest expense relatedto the accretion and write-off of debt discounts and paid in kind interest, and deferred taxes.For the year ended December 31, 2016, cash used in operations was $4.8 million, resulting from our net loss of $39.2 million and a $6.4million payment for paid-in-kind interest, largely offset by net cash flows provided through changes in net non-cash expenses of $27.3 million andchanges in our operating assets and liabilities of $13.4 million. The $13.4 million of net cash flows provided as a result of changes in our operatingassets and liabilities reflected a $29.5 million increase in deferred revenue as a result of the growth of our customer and user base, which are billedin advance of our revenue recognition, a $3.9 million increase in accrued expenses primarily associated with increases in employee-relatedaccruals as a result of increases in headcount and bonuses, and a $3.5 million increase in accounts payable associated with the growth of thebusiness. The changes in our operating assets and liabilities were partially offset by a $15.5 million increase in accounts receivable due to thegrowth of our customer and user base, a $3.4 million increase in deferred sales commissions due to an increase in revenue, a $3.1 millionincrease in prepaid expenses and other current assets due primarily to increases in prepaid software subscriptions and insurance recognized toexpense over a period of one year or less, and a $1.2 million decrease in other long-term liabilities due primarily to amortization of leaseholdimprovement allowances and free rent periods associated with the expansion of our corporate headquarters.For the year ended December 31, 2015, cash provided by operations was $1.0 million, resulting from our net loss of $24.7 million, largelyoffset by net cash flows provided through changes in our operating assets and liabilities of $16.4 million and net non-cash expenses of $9.4million. The $16.4 million of net cash flows provided as a result of changes in our operating assets and liabilities reflected a $18.2 million increasein deferred revenue as a result of the growth of our customer and user base, which are billed in advance of our revenue recognition, a $6.8 millionincrease in accrued expenses primarily associated with increases in employee-related accruals as a result of increases in headcount and bonuses,and professional services costs, a $2.0 million increase in other long-term liabilities primarily related to deferred rent due to the leaseholdimprovement allowances and free rent periods associated with the expansion of our corporate headquarters, and a $1.1 million increase inaccounts payable associated with the growth of our business. The changes in our operating assets and liabilities were partially offset by a $6.2million increase in accounts receivable due to the growth of our customer and user base and a $4.3 million increase in deferred sales commissionsdue to an increase in revenues.During the year ended December 31, 2014, cash provided by operations was $8.9 million resulting from our net loss of $16.8 million, largelyoffset by net cash flows provided through changes in our operating assets and liabilities of $13.0 million and non-cash expenses of $12.6 million.The $13.0 million of net cash flows provided as a result of changes in our operating assets and liabilities reflected a $17.2 million increase indeferred revenue as a result of the growth of our customer and user base which are billed in advance of our revenue recognition, a $3.2 millionincrease in accrued expenses primarily associated with increases in employee-related accruals as a result of increases in headcount, and a $1.0million increase in deferred rent due to the leasehold improvement allowances and free rent periods associated with the expansion of our corporateheadquarters. The changes in our operating assets and liabilities were partially offset by a $6.8 million increase in accounts receivable due to thegrowth of our customer and user base, a $1.3 million increase in deferred sales commissions due to an increase in commissionable revenues anda $1.1 million increase in prepaid expenses and other current assets associated with the growth of our business.58 Net Cash Used In Investing ActivitiesOur primary investing activities have consisted of capital expenditures for property and equipment and capitalized software developmentcosts. In August 2016, we completed our Runbook Acquisition. In November 2016, we completed our initial public offering and used a portion ofthe proceeds to invest in marketable securities.For the year ended December 31, 2016, we used $119.7 million in cash as a result of $83.2 million of investments in marketable securities,which are primarily comprised of U.S. Treasury and corporate bonds, the Runbook Acquisition, with a total purchase price of $34.1 million, subjectto a final working capital adjustment, offset by cash acquired in the amount of $2.6 million, $3.3 million in capitalized software development costsand $1.7 million of purchases of property and equipment.For the year ended December 31, 2015, we used $12.4 million in cash primarily as a result of $10.1 million in purchases of property andequipment of which $7.1 million related to the expansion of our global headquarters. During 2015, we also paid $2.3 million of costs related tocapitalized software development activities.For the year ended December 31, 2014, we used $2.9 million in cash as a result of $1.4 million in capitalized software development costsand $1.4 million of purchases of property and equipment, of which $0.8 million related to the expansion of our global headquarters.Net Cash Provided By Financing ActivitiesFor the year ended December 31, 2016, financing activities provided $131.4 million in cash primarily as a result of the successfulcompletion of our initial public offering, which resulted in proceeds of $151.9 million, net of underwriting discounts and commissions and otheroffering expenses, including $4.4 million in cash paid for deferred offering costs. During the year, we also received $34.3 million in proceeds underour credit facility, $3.1 million in proceeds from our issuance of common stock to former employees of Runbook Company B.V. and $2.9 million inproceeds from exercise of stock options. The net cash provided by financing activities was largely offset by the termination of our credit facility inNovember 2016 and the associated repayment of term loans and prepayment penalties in the amount of $60.7 million. For the year ended December 31, 2015, financing activities provided $0.9 million in cash primarily as a result of $1.4 million in proceedsfrom exercises of stock options. These proceeds were partially offset by $0.5 million in principal payments on capital lease obligations.For the year ended December 31, 2014, financing activities provided $4.8 million in cash primarily as a result of our issuances of commonstock.BacklogWe enter into both single and multi-year subscription contracts for our solutions. The timing of our invoices to the customer is a negotiatedterm and thus varies among our subscription contracts. For multi-year agreements, it is common to invoice an initial amount at contract signingfollowed by subsequent annual invoices. At any point in the contract term, there can be amounts that we have not yet been contractually able toinvoice. Until such time as these amounts are invoiced, they are not recorded in revenues, deferred revenue or elsewhere in our consolidatedfinancial statements and are considered by us to be backlog. As of December 31, 2016 and 2015, we had backlog of approximately $78.7 millionand $49.0 million, respectively. We expect backlog will change from period to period for several reasons, including the timing and duration ofcustomer agreements, varying billing cycles of subscription agreements, and the timing and duration of customer renewals. Because revenue forany period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well ascontract renewals and new customer contracts during the period, backlog at the beginning of any period is not necessarily indicative of futurerevenue performance. We do not utilize backlog as a key management metric internally.59 Contractual Obligations and CommitmentsThe following table summarizes our contractual obligations at December 31, 2016: Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Operating lease obligations (1) $14,594 $3,830 $4,848 $3,794 $2,122 Purchase obligations 1,307 1,223 84 — — Capital lease obligations 992 992 — — — $16,893 $6,045 $4,932 $3,794 $2,122 (1)Operating leases include total future minimum rent payments under non-cancelable operating lease agreements.We are required to pay up to a maximum of $8 million of contingent consideration relating to our 2013 Acquisition if we realize a tax benefitfrom the use of net operating losses generated from the stock option exercises concurrent with the 2013 Acquisition. We have not included thisobligation in the table above, because there is a high degree of uncertainty regarding the amount and timing of future cash flows to extinguish thisliability. The settlement of this liability depends on our ability to generate taxable income in the future to realize this tax benefit. At December 31, 2016, liabilities for unrecognized tax benefits of $0.4 million are not included in the table above because, due to theirnature, there is a high degree of uncertainty regarding the timing of future cash outflows and other events that extinguish these liabilities.Off-Balance Sheet ArrangementsAs part of our ongoing business, we do not have any relationships with other entities or financial partnerships, such as entities often referredto as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet arrangements orother contractually narrow or limited purposes. We are therefore not exposed to any financing, liquidity, market, or credit risk that could arise if wehad engaged in those types of relationships.In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, vendors, investors, directors,and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to beprovided by us, or from intellectual property infringement claims made by third parties. These indemnification provisions may survive termination ofthe underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnificationprovisions may not be subject to maximum loss clauses. The maximum potential amount of future payments we could be required to make underthese indemnification provisions is indeterminable. We have never paid a material claim, nor have we been sued in connection with theseindemnification arrangements. As of December 31, 2016, we have not accrued a liability for these indemnification arrangements because thelikelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not probable or reasonably estimable.Critical Accounting Policies and EstimatesOur financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance withgenerally accepted accounting principles, or GAAP, in the United States. The preparation of consolidated financial statements in conformity withGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenues and expenses duringthe reporting period. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience andvarious other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.We believe that the following critical accounting policies involve a greater degree of judgment or complexity than our other accountingpolicies. Accordingly, these are the policies we believe are the most critical to a full understanding and evaluation of our consolidated financialcondition and results of operations. See “Significant Accounting Policies” in Note 2 of the accompanying notes to our consolidated financialstatements for additional information.60 Revenue Recognition and Deferred RevenueSubscription and support revenue—Customers pay subscription fees for access to our SaaS platform generally for a one-year period. Inmore limited cases, customers may pay for up to three years in advance. Fees are based on a number of factors, including the solutionssubscribed for by the customer and the number of users having access to the solutions. The first year subscription fees are typically payablewithin 30 days after the execution of the arrangement, and thereafter upon renewal. We initially record the subscription fees as deferred revenueand recognize revenue on a straight-line basis over the term of the agreement. At any time during the subscription period, customers may increasethe number of their users or subscribe for additional products. Additional user fees and additional product subscriptions are payable for theremainder of the initial or extended contract term. Subscription and support revenue also includes software revenue related to maintenance andsupport fees on legacy BlackLine solutions and software license and maintenance revenue on Runbook software sales.Professional services—We offer customers assistance in implementing our solutions and optimizing their use. Professional servicesinclude training and consulting. These services are billed on either a fixed fee or time and material basis. Revenues from time and materialarrangements are recognized as services are performed and revenues from fixed fee arrangements are initially recorded as deferred revenue andrecognized on a proportional performance basis as the services are performed.We recognize revenues when: (i) persuasive evidence of an arrangement for the sale of our solutions or implementation and consultingservices exists, (ii) the solutions have been made available or delivered, or services have been performed, (iii) the sales price is fixed ordeterminable, and (iv) collectability is reasonably assured. The timing and amount we recognize as revenue is determined based on the facts andcircumstances of each customer’s arrangement. Evidence of an arrangement consists of a signed customer agreement. We consider that deliveryof a solution has commenced once we provide the customer with log-in information to access and use the solution. Fees are fixed based on statedrates specified in the customer agreement. We assess collectability based on a number of factors, including the creditworthiness of the customer,review of their financial information or transaction history. If collectability is not considered reasonably assured, revenue is deferred until the feesare collected.The majority of customer arrangements include multiple deliverables such as subscriptions to our SaaS solutions and professional services.We recognize revenue in accordance with the guidance for arrangements with multiple deliverables under Accounting Standards Update, or ASU,2009-13 – Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements – a Consensus of the Emerging Issues Task Force orASU 2009-13. For subscription agreements, as customers do not have the right to the software code underlying our solutions, subscriptionrevenue arrangements are outside the scope of software revenue recognition guidance as defined by ASC Topic 985-605, Software. Ouragreements do not contain any refund provisions other than in the event of our non-performance or breach.For multiple-deliverable revenue arrangements, we first assess whether each deliverable has value to the customer on a standalone basis.We have determined that the SaaS solutions have standalone value, because, once access is given to the customer, the solutions are fullyfunctional and do not require any additional development, modification, or customization. Professional services have standalone value, becausethird-party partners and customers themselves can perform these services without our involvement. The performance of these professionalservices generally does not require highly specialized or technologically skilled individuals and the professional services are not essential to thefunctionality of the solutions.We allocate revenue among the separate non-contingent deliverables in an arrangement under the relative selling price method using theselling price hierarchy established in ASU 2009-13. This hierarchy requires the selling price of each deliverable in a multiple deliverablearrangement to be based on, in descending order: (i) vendor-specific objective evidence of fair value, or VSOE, (ii) third-party evidence of fairvalue, or TPE, or (iii) management’s best estimate of the selling price, or BESP. We are not able to determine VSOE or TPE for our deliverables, because the deliverables are typically bundled and infrequently soldseparately within a consistent price range. Additionally, management has determined that there are no third-party offerings reasonably comparableto our solutions. Therefore, the selling prices of subscriptions to the SaaS solutions and professional services are based on BESP. Thedetermination of BESP requires us to make significant estimates and judgments. We consider numerous factors, including the nature of thedeliverables themselves, geography, customer size and number of users, and discounting practices. The determination of BESP is made throughconsultation with senior management. We update our estimates of BESP on an ongoing basis as events and as circumstances may require. Asour marketing strategies evolve, we may modify its pricing practices in the future, which could result in changes in relative selling prices andBESP.61 In addition to our direct sales and marketing efforts, we have strategic relationships with business process outsourcers, or BPOs, andresellers. The BPOs and resellers place orders with us after receiving an order from an end customer. The BPOs and resellers receive businessterms of sale similar to those received by our direct customers, and payment to us is not contingent on the receipt of payment from the endcustomer. The BPOs and resellers negotiate pricing with the end customer and are responsible for implementation services, if any, and for certainsupport levels directly with the end customer. We recognize revenue over the term of the arrangement for the contractual amount charged to theBPO or reseller, once access to our solution has been provided to the end customer provided that the other revenue recognition criteria notedabove have been met.Deferred Sales CommissionsDeferred sales commissions are the incremental costs that are directly associated with non-cancelable subscription contracts withcustomers and consist of sales commissions paid to our direct sales force and third-party partners. The commissions are deferred and amortizedover the non-cancelable terms of the related customer contracts, which are typically one year in duration. The commission payments are paid infull the month after the customer’s service commences. The deferred commission amounts are recoverable through the future revenue streamsunder the non-cancelable customer contracts. We believe this is the preferable method of accounting as the sales commission charges are soclosely related to the revenue from the non-cancelable customer contracts that they should be recorded as an asset and charged to expense overthe same period that the subscription revenue is recognized. Amortization of deferred sales commissions is included in sales and marketing in ourconsolidated statements of operations.Stock-based CompensationWe account for stock-based compensation awards granted to employees and directors based on the awards’ estimated grant date fair value.We estimate the fair value of our stock options using the Black-Scholes option-pricing model. For awards that vest solely based on continuedservice (“service-only vesting conditions”), the resulting fair value, net of estimated forfeitures, is recognized on a straight-line basis over theperiod during which an employee is required to provide service in exchange for the award, usually the vesting period, which is generally four years.We recognize the fair value of stock options which contain performance conditions based upon the probability of the performance conditions beingmet, net of estimated forfeitures, using the graded vesting method. Estimated forfeitures are based upon our historical experience and we reviseour estimates, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.Determining the grant date fair value of options using the Black-Scholes option pricing model requires management to make assumptionsand judgments. These estimates involve inherent uncertainties and if different assumptions had been used, stock-based compensation expensecould have been materially different from the amounts recorded. The assumptions and estimates are as follows: •Value per share of our common stock. Prior to our initial public offering in October 2016, because there was no public market forour common stock, our management, with the assistance of a third-party valuation specialist, determined the fair value of ourcommon stock at the time of the grant of stock options by considering a number of objective and subjective factors, including ouractual operating and financial performance, market conditions and performance of comparable publicly-traded companies,developments and milestones in our company, the likelihood of achieving a liquidity event and transactions involving our commonstock, among other factors. The fair value of the underlying common stock was determined by our board of directors through the dateof the initial public offering. The fair value of our common stock was determined in accordance with applicable elements of thepractice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity SecuritiesIssued as Compensation. For awards granted subsequent to our initial public offering, the fair value of our common stock is basedon the closing price of our common stock, as reported on the NASDAQ Global Select Market, on the date of grant. •Expected volatility. We determine the expected volatility based on historical average volatilities of similar publicly tradedcompanies corresponding to the expected term of the awards. •Expected term. We determine the expected term of awards which contain service-only vesting conditions using the simplifiedapproach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration dateof the award. For awards granted which contain performance conditions, we estimate the expected term based on estimates of post-vesting employment termination behavior taking into account the life of the award.62 •Risk-free interest rate. The risk-free interest rate is based on the United States Treasury yield curve in effect during the period theoptions were granted corresponding to the expected term of the awards. •Estimated dividend yield. The estimated dividend yield is zero, as we do not currently intend to declare dividends in theforeseeable future.In October 2016, we granted options to purchase shares of common stock to two executive officers that vest upon meeting certainperformance conditions and continued service. The performance conditions include meeting yearly cash flow targets and cumulative annualrecurring revenue targets through 2019. If each yearly cash flow target is met through 2019, but the full cumulative annual recurring target through2019 is not met, the executive officers are still able to vest in the award if an additional cash flow target for 2020 and a cumulative annual recurringrevenue target through 2020 are achieved. The cash flow performance targets for each year are determined concurrently with the annual budgetprocess and because each yearly target has not yet been set, no grant date for the options has been established. As of December 31, 2016, wedetermined that the achievement of the performance targets is not probable and accordingly, no stock-based compensation expense has beenrecorded for these awards. To the extent that the awards become probable of vesting prior to the grant date, the amount of compensation cost tobe recognized will be based on the then fair value of the options. The fair value of the options will be remeasured each period until a grant date hasbeen established. Accordingly, stock-based compensation cost, if any, to be recognized will depend on the value of the stock options when allperformance conditions have been set and whether the performance conditions are probable of being achieved.Capitalized Software CostsWe account for the costs of computer software obtained or developed for internal use in accordance with ASC 350, Intangibles—Goodwilland Other (“ASC 350”). We capitalize certain costs in the development of our SaaS subscription solutions when (i) the preliminary project stage iscompleted, (ii) management has authorized further funding for the completion of the project and (iii) it is probable that the project will be completedand performed as intended. These capitalized costs include personnel and related expenses for employees and costs of third-party contractorswho are directly associated with and who devote time to internal-use software projects and, when material, interest costs incurred during thedevelopment. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose.Costs incurred for significant upgrades and enhancements to our SaaS software solutions are also capitalized. Costs incurred for post-configuration training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software development costsare amortized using the straight-line method over an estimated useful life of three years.Business CombinationsThe results of businesses acquired in a business combination are included in our consolidated financial statements from the date of theacquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on theacquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.We perform valuations of assets acquired and liabilities assumed and allocate the purchase price to its respective assets and liabilities.Determining the fair value of assets acquired and liabilities assumed requires our management to use significant judgment and estimates includingthe selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates and selection of comparablecompanies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair valuesof assets acquired and liabilities assumed in a business combination.The fair value of the deferred revenue at the date of acquisition is determined based on the estimated direct and incremental costs to fulfillthe legal performance obligations associated with the deferred revenue, plus a reasonable profit margin. To the extent that the fair value of deferredrevenue at the acquisition date is less than it’s then carrying value, the revenue in periods subsequent to the acquisition date is reduced until suchtime that the underlying revenue is recognized.Contingent consideration payable in cash arising from business combinations is recorded as a liability and measured at fair value eachperiod. Changes in fair value are recorded in general and administrative expenses in the consolidated statements of operations. Determining thefair value of the contingent consideration each period requires our management to make assumptions and judgments. These estimates involveinherent uncertainties and if different assumptions had been used, the fair value of contingent consideration could have been materially differentfrom the63 amounts recorded. We are required to pay up to a maximum of $8 million of contingent consideration relating to our 2013 Acquisition if we realize atax benefit from the use of net operating losses generated from the stock option exercises concurrent with the 2013 Acquisition. We determine thefair value of contingent consideration by discounting estimated future taxable income. The significant inputs used in the fair value measurement ofcontingent consideration are the timing and amount of taxable income in any given period and determining an appropriate discount rate whichconsiders the risk associated with the forecasted taxable income. Significant changes in the estimated future taxable income and the periods inwhich they are generated would significantly impact the fair value of the contingent consideration liability. Income TaxesWe use the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on thetemporary differences between the financial statement and tax bases of assets and liabilities, using tax rates expected to be in effect during theyears in which the bases differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that some of thedeferred tax assets will not be realized.We have assessed our income tax positions and recorded tax benefits for all years subject to examination, based upon our evaluation of thefacts, circumstances and information available at each period-end. For those tax positions where we have determined there is a greater than 50%likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that may potentially be realized upon ultimatesettlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where we have determinedthere is a less than 50% likelihood that a tax benefit will be sustained, no tax benefit has been recognized in our financial statements.Fair Value of Common Stock WarrantsIn September 2013, in connection with the $25 million term loan agreement, we issued warrants to purchase 499,999 shares of commonstock at an exercise price per share of $5.00. The warrants are exercisable at any time by the holder and expire upon the earlier of ten years fromthe issuance date or the sale of our company.These warrants are classified as a liability and are measured at fair value each period with changes in fair value recorded in our consolidatedstatement of operations. The warrants will continue to be measured at fair value each period until the earlier of exercise or termination.Determining the fair value of the common stock warrants each period requires our management to make assumptions and judgments. Theseestimates involve inherent uncertainties and if different assumptions had been used, fair value of the common stock warrants could have beenmaterially different from the amounts recorded. The fair value is determined using a binomial lattice valuation model. The significant inputs used inthe fair value measurement of the common stock warrants are the estimated fair value of our common stock and to a lesser extent the expectedstock volatility, the probability of a change in control and future stock issuances which impact the term of the warrants. Significant increases ordecreases in the estimated fair value of our common stock would significantly impact the fair value of the warrant liability. The fair value of ourcommon stock is based on a number of quantitative and qualitative factors as described in Stock-Based Compensation section above.Recent Accounting PronouncementsSee Note 2, "Significant Accounting Policies—Recently Issued Accounting Standards,” of the Notes to Consolidated Financial Statementsincluded in Part II, Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements, including the expected datesof adoption and estimated effects on our financial condition, results of operations and cash flows.64 Item 7A.Quantitative and Qualitative Disclosures About Market RisksWe have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of ourbusiness. These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the generaleconomic conditions in the countries where we conduct business. To reduce these risks, we monitor the financial condition of our clients and limitcredit exposure by collecting in advance and setting credit limits as we deem appropriate. In addition, our investment strategy has historically beento invest in financial instruments that are highly liquid and readily convertible into cash and that mature within three months from the date ofpurchase. To date, we have not used derivative instruments to mitigate the impact of our market risk exposures. We have also not used, nor dowe intend to use, derivatives for trading or speculative purposes.Interest Rate RiskWe are exposed to market risk related to changes in interest rates.We had cash and cash equivalents and marketable securities of $105.2 million as of December 31, 2016. Our cash equivalents andmarketable securities consist of highly liquid, investment-grade commercial paper, corporate bonds, U.S. treasury bonds, and asset-backedsecurities. The carrying amount of our cash equivalents and marketable securities reasonably approximates fair value due to the highly liquidnature of these instruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs andthe fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposedto market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments. Due to theshort-term nature of our investment portfolio, however, we do not believe an immediate 10% increase or decrease in interest rates would have amaterial effect on the fair market value of our portfolio. We therefore do not expect our operating results or cash flows to be materially affected bya sudden change in market interest rates.We do not believe our cash equivalents have significant risk of default or illiquidity. While we believe our cash equivalents do not containexcessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. Inaddition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insuredlimits. We cannot be assured that we will not experience losses on these deposits.Foreign Currency RiskWe have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. Dollar. Ourhistorical revenues have primarily been denominated in U.S. Dollars, and a significant portion of our current revenues continue to be denominatedin U.S. Dollars. However, we expect an increasing portion of our future revenues to be denominated in currencies other than the U.S. Dollar,primarily the Euro and British pound. The effect of an immediate 10% adverse change in foreign exchange rates on foreign-denominated accountsreceivable at December 31, 2016 would not be material to our financial condition or results of operations. Our operating expenses are generallydenominated in the currencies of the countries in which our operations are located, primarily the United States and, to a much lesser extent, theUnited Kingdom, other European Union countries, Canada, Australia, and Singapore. Increases and decreases in our foreign-denominated revenuefrom movements in foreign exchange rates are partially offset by the corresponding decreases or increases in our foreign-denominated operatingexpenses.As our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue toreassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. Dollar can increase the costs of ourinternational expansion. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations have not had amaterial impact on our operating results and cash flows. Based on our current international structure, we do not plan on engaging in hedgingactivities in the near future.Inflation RiskWe do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if ourcosts were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.Our inability or failure to do so could harm our business, financial condition and results of operations. 65 Item 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGEReport of Independent Registered Public Accounting Firm67Consolidated Balance Sheets as of December 31, 2016 and 201568Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 201469Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2015 and 201470Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016, 2015 and 201471Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 201472Notes to Consolidated Financial Statements74 66 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of BlackLine, Inc.:In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive loss,stockholders’ equity and cash flows present fairly, in all material respects, the financial position of BlackLine, Inc. and its subsidiaries (the“Company”) at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on ouraudits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overallfinancial statement presentation. We believe that our audits provide a reasonable basis for our opinion./s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 10, 201767 BLACKLINE, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except shares and par values) December 31, December 31, 2016 2015 ASSETS Current assets: Cash and cash equivalents $22,118 $15,205 Marketable securities 83,130 — Accounts receivable, net of allowances for doubtful accounts of $223 and $168 as of December 31, 2016 and 2015, respectively 42,294 24,235 Deferred sales commissions 9,667 6,246 Prepaid expenses and other current assets 6,614 2,801 Total current assets 163,823 48,487 Capitalized software development costs, net 4,591 2,967 Property and equipment, net 11,318 12,419 Intangible assets, net 54,118 56,828 Goodwill 185,138 163,154 Other assets 1,449 2,895 Total assets $420,437 $286,750 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $7,165 $4,648 Accrued expenses and other current liabilities 18,931 15,012 Deferred revenue 80,360 52,750 Short-term portion of contingent consideration 2,008 2,008 Total current liabilities 108,464 74,418 Term loan, net — 28,267 Common stock warrant liability 11,380 5,500 Contingent consideration 3,230 2,859 Deferred tax liabilities, net 1,262 5,907 Deferred revenue, noncurrent 2,373 — Other long-term liabilities 2,318 3,631 Total liabilities 129,027 120,582 Commitments and contingencies (Note 10) Stockholders' equity: Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of December 31, 2016 and 2015 — — Common stock, $0.01 par value, 500,000,000 shares authorized, 51,277,964 issued and outstanding as of December 31, 2016 and 40,720,327 issued and 40,673,327 outstanding as of December 31, 2015 513 407 Treasury stock, 0 shares and 47,000 shares at cost at December 31, 2016 and 2015, respectively — (254)Additional paid-in capital 378,272 214,171 Accumulated other comprehensive income (41) — Accumulated deficit (87,334) (48,156)Total stockholders' equity 291,410 166,168 Total liabilities and stockholders' equity $420,437 $286,750 The accompanying notes are an integral part of these consolidated financial statements.68 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Year Ended December 31, 2016 2015 2014 Revenues Subscription and support $117,524 $80,080 $49,029 Professional services 5,599 3,527 2,648 Total revenues 123,123 83,607 51,677 Cost of revenues Subscription and support 25,900 19,773 14,380 Professional services 4,311 2,956 2,218 Total cost of revenues 30,211 22,729 16,598 Gross profit 92,912 60,878 35,079 Operating expenses Sales and marketing 77,810 56,546 31,837 Research and development 21,125 18,216 9,705 General and administrative 27,911 20,928 11,716 Total operating expenses 126,846 95,690 53,258 Loss from operations (33,934) (34,812) (18,179)Other expense Interest expense, net (5,932) (3,215) (3,047)Change in fair value of the common stock warrant liability (5,880) (420) (3,700)Other expense, net (11,812) (3,635) (6,747)Loss before income taxes (45,746) (38,447) (24,926)Benefit from income taxes (6,587) (13,713) (8,174)Net loss $(39,159) $(24,734) $(16,752)Net loss per share, basic and diluted $(0.92) $(0.61) $(0.42)Weighted average common shares outstanding, basic and diluted 42,497 40,579 40,089 The accompanying notes are an integral part of these consolidated financial statements.69 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Year Ended December 31, 2016 2015 2014 Net loss $(39,159) $(24,734) $(16,752)Other comprehensive loss: Net change in unrealized losses on marketable securities, net of tax of $0 for the year ended December 31, 2016 (41) — — Other comprehensive loss (41) — — Comprehensive loss $(39,200) $(24,734) $(16,752) The accompanying notes are an integral part of these consolidated financial statements.70 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands, except shares) Accumulated Common Stock Additional Other SharesOutstanding Amount Treasury Stock,at cost Paid-inCapital ComprehensiveLoss AccumulatedDeficit Total Balance at December 31, 2013 40,080,000 $401 $— $200,121 $— $(6,670) $193,852 Common stock issuance 357,142 4 — 4,996 — — 5,000 Stock repurchases (45,000) — (225) — — — (225)Stock-based compensation — — — 2,072 — — 2,072 Net loss — — — — — (16,752) (16,752)Balance at December 31, 2014 40,392,142 405 (225) 207,189 — (23,422) 183,947 Stock option exercises 283,185 2 — 1,418 — — 1,420 Stock repurchases (2,000) — (29) — — — (29)Stock-based compensation — — — 5,564 — — 5,564 Net loss — — — — — (24,734) (24,734)Balance at December 31, 2015 40,673,327 407 (254) 214,171 — (48,156) 166,168 Stock option exercises 522,450 5 — 2,855 — — 2,860 Common stock issuance 192,187 2 — 3,073 — — 3,075 Issuance of common stock in connection with initial public offering, net of offering costs 9,890,000 99 — 151,780 — — 151,879 Retirement of treasury stock — — 254 (235) — (19) — Stock-based compensation — — — 6,628 — — 6,628 Other comprehensive loss — — — — (41) — (41)Net loss — — — — — (39,159) (39,159)Balance at December 31, 2016 51,277,964 $513 $— $378,272 $(41) $(87,334) $291,410 The accompanying notes are an integral part of these consolidated financial statements.71 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2016 2015 2014 Cash flows from operating activities Net loss $(39,159) $(24,734) $(16,752)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 17,424 14,739 13,455 Accretion of debt discount and accrual of paid in kind interest 4,557 2,594 2,541 Payment of paid in kind interest (6,418) — — Change in fair value of common stock warrant liability 5,880 420 3,700 Change in fair value of contingent consideration 371 41 (781)Stock-based compensation 6,526 5,497 2,017 Deferred income taxes (7,432) (13,941) (8,283)Changes in operating assets and liabilities, net of effects of the acquisition: Accounts receivable (15,541) (6,195) (6,821)Deferred sales commissions (3,421) (4,343) (1,254)Prepaid expenses and other current assets (3,095) (507) (1,116)Other assets (201) (571) (98)Accounts payable 3,544 1,073 810 Accrued expenses and other current liabilities 3,864 6,753 3,241 Deferred revenue 29,482 18,176 17,246 Other long-term liabilities (1,189) 2,004 1,038 Net cash provided by (used in) operating activities (4,808) 1,006 8,943 Cash flows from investing activities Acquisition, net of cash acquired (31,488) — — Investments in marketable securities (83,192) — — Capitalized software development costs (3,270) (2,273) (1,437)Purchases of property and equipment (1,724) (10,094) (1,429)Net cash used in investing activities (119,674) (12,367) (2,866)Cash flows from financing activities Proceeds from term loan, net of issuance costs 34,300 — — Principal payments on term loan and prepayment penalties (60,706) — — Principal payments on capital lease obligations (124) (532) — Proceeds from issuance of common stock 3,075 — 5,000 Payments of initial public offering costs (4,372) — — Proceeds from initial public offering, net of underwriting discounts and commissions 156,362 — — Repurchases of common stock — (29) (225)Proceeds from exercises of stock options 2,860 1,420 — Net cash provided by financing activities 131,395 859 4,775 Net increase (decrease) in cash and cash equivalents 6,913 (10,502) 10,852 Cash and cash equivalents, beginning of period 15,205 25,707 14,855 Cash and cash equivalents, end of period $22,118 $15,205 $25,707 The accompanying notes are an integral part of these consolidated financial statements.72 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSSUPPLEMENTAL CASH FLOW DISCLOSURE(In thousands) Year Ended December 31, 2016 2015 2014 Supplemental disclosures of cash flow information Cash paid for interest $8,646 $634 $506 Cash paid for income taxes $176 $6 $10 Non-cash financing and investing activities Capitalized software development costs included in accounts payable and accrued expenses and other current liabilities $153 $— $80 Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities $63 $172 $996 Stock-based compensation capitalized for software development $102 $67 $55 Property and equipment acquired under capital leases $— $1,648 $— Deferred offering costs included in accounts payable and accrued expenses and other current liabilities $110 $1,647 $— The accompanying notes are an integral part of these consolidated financial statements. 73 BLACKLINE, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNote 1—The CompanyBlackLine, Inc. and its subsidiaries (the “Company” or “BlackLine”) provide financial accounting close solutions delivered primarily asSoftware 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, and Singapore.Note 2—Significant accounting policiesPrinciples of consolidation and basis of presentationThe Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the UnitedStates of America (“GAAP”) and include the operating results of its wholly-owned subsidiaries. All intercompany accounts and transactions havebeen eliminated in consolidation.Reverse stock splitOn October 12, 2016, the Company effected a 1-for-5 reverse stock split of its outstanding common stock. All share and per shareamounts for all periods presented in these consolidated financial statements and notes thereto have been adjusted retrospectively, whereapplicable, to reflect this reverse stock split.Use of estimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the consolidatedfinancial statements, and the reported amounts of revenues and expenses during the reporting period.On an ongoing basis, management evaluates its estimates, primarily those related to determining the best estimate of selling price (“BESP”)for separate deliverables in the Company’s subscription revenue arrangements, vendor-specific objective evidence (“VSOE”) for separatedeliverables in the Company’s licensed revenue arrangements, allowance for doubtful accounts, fair value of assets and liabilities assumed in abusiness combination, recoverability of goodwill and long-lived assets, useful lives associated with long-lived assets, contingencies, fair value ofcontingent consideration, and the valuation and assumptions underlying stock-based compensation and common stock warrants. These estimatesare based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances.Actual results could differ from those estimates.SegmentsManagement has determined that the Company has one operating segment. The Company’s chief executive officer, who is the Company’schief operating decision maker, reviews financial information on a consolidated and aggregate basis, together with certain operating metricsprincipally to make decisions about how to allocate resources and to measure the Company’s performance.Cash and cash equivalentsThe Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase tobe cash equivalents. Cash includes cash held in checking and savings accounts. Cash equivalents are comprised of investments in moneymarket mutual funds. The carrying value of cash and cash equivalents approximates fair value.74 Restricted cashIncluded in non-current other assets at December 31, 2016 and 2015 was cash of $ 0.4 million required to be restricted as to use by theCompany’s office leaseholder to collateralize a standby letter of credit.Investments in Marketable SecuritiesOur marketable securities consist of commercial paper, corporate bonds, U.S. treasury bonds, and asset-backed securities. The Companyclassifies its marketable securities as available-for-sale at the time of purchase, and the Company reevaluates such classification as of eachbalance sheet date. All marketable securities are recorded at their estimated fair value, with any unrealized gains and losses reported as acomponent of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline in market value hasoccurred. Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likely the Company willsell the securities before the recovery of their cost basis. Realized gains and losses and declines in value deemed to be other than temporary aredetermined based on the specific identification method and are reported in other income (expense), net in the consolidated statements ofoperations. The Company classifies its investments in marketable securities in current assets as the investments are available for use, if needed, incurrent operations. Investments in marketable securities presented within current assets on the consolidated balance sheet as of December 31, 2016 consistedof the following: AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair Value Marketable securities (in thousands) U.S. Treasury bonds $29,742 $— $(17) $29,725 Corporate Bonds 25,522 — (21) 25,501 Commercial paper 15,554 — — 15,554 Asset-backed securities 12,353 — (3) 12,350 $83,171 $— $(41) $83,130 Gross realized gains and losses on marketable securities and net gains and losses reclassified from accumulated other comprehensiveincome to earnings were not material for the year ended December 31, 2016. The Company’s marketable securities have a contractual maturity of less than 4 years. The amortized cost and fair values of marketablesecurities, by remaining contractual maturity, were as follows: December 31, 2016 AmortizedCost Fair Value (in thousands) Due in 1 year or less $49,371 $49,363 Due after 1 year through 4 years 33,800 33,767 $83,171 $83,130 The Company held no marketable securities during the years ended December 31, 2015 and 2014. Accounts receivable and allowance for doubtful accountsAccounts receivable are recorded at the invoiced amount, do not require collateral and do not bear interest. The Company estimates itsallowance for doubtful accounts by evaluating specific accounts where information indicates the Company’s customers may have an inability tomeet financial obligations, such as bankruptcy and significantly aged receivables outstanding. 75 Concentration of credit risk and significant customersFinancial instruments that potentially subject the Company to a significant concentration of credit risk consist of cash and cash equivalents,investments in marketable securities and accounts receivable.The Company maintains the majority of its cash balances with one major commercial bank in non-interest bearing accounts, which exceedsthe Federal Deposit Insurance Corporation, or FDIC, federally insured limits.The Company invests its excess cash in money market mutual funds, commercial paper, corporate bonds, U.S. treasury bonds, and asset-backed securities. To date, the Company has not experienced any impairment losses on its investments.For the years ended December 31, 2016, 2015 and 2014, no single customer comprised 10% or more of the Company’s total revenues. Nosingle customer had an accounts receivable balance of 10% or greater of total accounts receivable at December 31, 2016 and 2015.Property and equipmentProperty and equipment is stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are expensed asincurred, while renewals and betterments are capitalized. Depreciation expense is charged to operations on a straight-line basis over the estimateduseful lives of the assets.The estimated useful lives of the Company’s property and equipment are as follows: Useful LivesMachinery and equipment 3-5 yearsPurchased software 3-5 yearsFurniture and fixtures 5 yearsLeasehold improvements Lesser of7 years orlease term Assets acquired under capital leases are capitalized at the present value of the related lease payments and are amortized over the shorterof the lease term or useful life of the asset.Capitalized internal-use software costsThe Company accounts for the costs of computer software obtained or developed for internal use in accordance with ASC 350, Intangibles—Goodwill and Other (“ASC 350”). The Company capitalizes certain costs in the development of its SaaS subscription solution when (i) thepreliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and (iii) it is probable thatthe project will be completed and performed as intended. These capitalized costs include personnel and related expenses for employees and costsof third-party contractors who are directly associated with and who devote time to internal-use software projects and, when material, interest costsincurred during the development. Capitalization of these costs ceases once the project is substantially complete and the software is ready for itsintended purpose. Costs incurred for significant upgrades and enhancements to the Company’s SaaS software solutions are also capitalized.Costs incurred for training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalized software developmentcosts are amortized using the straight-line method over an estimated useful life of three years.During the years ended December 31, 2016, 2015 and 2014, the Company amortized $1.8 million, $0.9 million and $0.3 million, respectively,of internal-use software development costs to subscription and support cost of revenue. As of December 31, 2016 and 2015, the accumulatedamortization of internal-use software development costs was $2.9 million and $1.2 million, respectively. Business combinationsThe results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from thedate of the acquisition. Purchase accounting results in assets and liabilities of an acquired business76 generally being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquiredand liabilities assumed is recognized as goodwill.Transaction costs associated with business combinations are expensed as incurred and are included in general and administrativeexpenses in the consolidated statements of operations.The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets andliabilities. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates,including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of comparablecompanies. The Company engages the assistance of valuation specialists in concluding on fair value measurements in connection withdetermining fair values of assets acquired and liabilities assumed in a business combination.Intangible assetsIntangible assets primarily consist of acquired developed technology, customer relationships, trade names and non-compete agreements,which were acquired as part of the Company’s acquisitions of BlackLine Systems, Inc. in September 2013 and Runbook Company B.V.(“Runbook”) in August 2016. The Company determines the appropriate useful life of its intangible assets by performing an analysis of expectedcash flows of the acquired assets. Intangible assets are amortized over their estimated useful lives using the straight-line method, whichapproximates the pattern in which the economic benefits are consumed. The estimated useful lives of the Company’s finite-lived intangible assetsare as follows: Useful LivesTrade name 1-10 yearsDeveloped technology 6-8 yearsNon-compete agreements 2-5 yearsCustomer relationships 8-10 years Impairment of long-lived assetsManagement evaluates the recoverability of the Company’s property and equipment, finite-lived intangible assets and capitalized internal-software costs when events or changes in circumstances indicate a potential impairment exists. Events and changes in circumstances consideredby the Company in determining whether the carrying value of long-lived assets may not be recoverable include, but are not limited to, significantchanges in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry oreconomic trends, and changes in the Company’s business strategy. Impairment testing is performed at an asset level that represents the lowestlevel for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (an “asset group”). In determining ifimpairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group.If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss ismeasured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company determined that therewere no events or changes in circumstances that potentially indicated that the Company’s long-lived assets were impaired during the years endedDecember 31, 2016, 2015 and 2014.GoodwillGoodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. The Companytests goodwill for impairment in accordance with the provisions of Accounting Standards Codification (“ASC”) 350, Intangibles—Goodwill andOther. Goodwill is tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate thatgoodwill might be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change inlegal factors or in the business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets orthe Company’s strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical orprojected future results of operations.77 ASC 350 provides that an entity has the option to first assess qualitative factors to determine whether the existence of events orcircumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, afterassessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is lessthan its carrying amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to performthe first of a two-step impairment test.The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fairvalue exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of thereporting unit is less than book value, then, under the second step, the carrying amount of the goodwill is compared with its implied fair value. Theestimate of implied fair value of goodwill may require valuations of certain internally-generated and unrecognized intangible assets. If the carryingamount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to the excess.The Company has one reporting unit and it tests for goodwill impairment annually during the fourth quarter of the calendar year. AtDecember 31, 2016, the fair value of the Company significantly exceeded the carrying value of its net assets and accordingly goodwill was notimpaired.Deferred rentRent expense is recorded on a straight-line basis over the term of the lease. The difference between rent expense and the cash paid underthe lease agreement is recorded as deferred rent. Lease incentives, including tenant improvement allowances, are also recorded as deferred rentand amortized on a straight-line basis over the lease term.Debt issued with warrants to purchase common stockThe Company issued warrants to purchase common stock in connection with its former credit facility. These warrants are a liabilityclassified under ASC 815-40, Contracts in Entity’s Own Equity, as they contain down-round protection such that, in the event of subsequentissuances of shares at-market by the Company below the exercise price of the warrant, then the warrant’s exercise price is reduced. The warrantsare measured at fair value each period with changes in fair value recorded in other income (expense), net in the consolidated statements ofoperations. The warrants will continue to be measured at fair value each period until the earlier of exercise or termination.The initial carrying value of the debt was reduced by the fair value of the warrants. The resulting debt discount was amortized to interestexpense over the life of the debt on a straight-line basis, which approximates the effective interest method. In November 2016, the Companyrepaid all outstanding debt and expensed the then-remaining unamortized debt discount to interest expense in the consolidated statements ofoperations.Fair value of financial instrumentsASC 820, Fair Value Measurements requires entities to disclose the fair value of financial instruments, both assets and liabilities recognizedand not recognized on the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange price that wouldbe received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in anorderly transaction between market participants on the measurement date.Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the lastunobservable, that may be used to measure fair value, which are the following: Level 1:Quoted prices in active markets for identical or similar assets and liabilities. Level 2:Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quotedprices in active markets for identical or similar assets or liabilities. Level 3:Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets orliabilities.As of December 31, 2016 and 2015, the carrying values of cash equivalents, accounts receivable, accounts payable, and accruedexpenses, approximate fair values due to the short-term nature of such instruments.78 The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as ofDecember 31, 2016 and 2015, by level, within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety basedon the lowest level of input that is significant to the fair value measurement (in thousands): December 31, 2016 Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $18,936 $— $— $18,936 Marketable securities U.S. Treasury bonds 29,725 — — 29,725 Corporate bonds — 25,501 — 25,501 Commercial paper — 15,554 — 15,554 Asset-backed securities — 12,349 — 12,349 Total assets $48,661 $53,404 $— $102,065 Liabilities Common stock warrant liability $— $— $11,380 $11,380 Contingent consideration — — 5,238 5,238 Total liabilities $— $— $16,618 $16,618 December 31, 2015 Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $15,990 $— $— $15,990 Total assets 15,990 $— $— $15,990 Liabilities Common stock warrant liability $— $— $5,500 $5,500 Contingent consideration — — 4,867 4,867 Total liabilities $— $— $10,367 $10,367 Contingent consideration relating to our 2013 Acquisition (Refer to Note 9) is recorded as a liability and is measured at fair value eachperiod, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. Thevaluation of contingent consideration uses assumptions management believes would be made by a market participant. Management assessesthese estimates on an ongoing basis as additional data impacting the assumptions becomes available. Changes in the fair value of contingentconsideration related to updated assumptions and estimates are recognized within general and administrative expenses in the consolidatedstatements of operations. The Company determined the fair value of the contingent consideration by discounting estimated future taxable income.The significant inputs used in the fair value measurement of contingent consideration are the timing and amount of taxable income in any givenperiod and determining an appropriate discount rate, which considers the risk associated with the forecasted taxable income. Significant changesin the estimated future taxable income and the periods in which they are generated would significantly impact the fair value of the contingentconsideration liability.Warrants to purchase common stock are liability classified and are measured at fair value each period. The fair value is determined using abinomial lattice valuation model. The fair value includes significant inputs not observable in the market, which represents a Level 3 measurementwithin the fair value hierarchy. The valuation of common stock warrants uses assumptions management believes would be made by a marketparticipant. Management assesses these estimates on an ongoing basis as additional data impacting the assumptions becomes available.Changes in the fair value of the common stock warrant liability related to updated assumptions and estimates are recognized within other income(expense), net in the consolidated statements of operations. The significant inputs used in the fair value measurement of the common stockwarrants are the estimated fair value of the Company’s common stock and, to a lesser extent, the expected stock volatility, the probability of achange in control and future stock issuances, which impact the term of the warrants. Significant increases or decreases in the estimated fair valueof the Company’s common stock would significantly impact the fair value of the warrant liability.79 The following table summarizes the changes in the common stock warrant liability and contingent consideration liability (in thousands): Contingent Common Stock Consideration Warrant Liability Fair value as of December 31, 2013 $5,607 $1,380 Change in fair value (781) 3,700 Fair value as of December 31, 2014 4,826 5,080 Change in fair value 41 420 Fair value as of December 31, 2015 4,867 5,500 Change in fair value 371 5,880 Fair value as of December 31, 2016 $5,238 $11,380 Certain assets, including goodwill and long-lived assets, are also subject to measurement at fair value on a non-recurring basis if they aredeemed to be impaired a result of an impairment review. For the years ended December 31, 2016, 2015 and 2014, no impairments were identifiedon those assets required to be measured at fair value on a non-recurring basis.Revenue recognitionThe Company derives its revenue from the following sources:Subscription and support revenue – Customers pay subscription 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 thesolutions subscribed for by the customer and the number of users having access to the solutions. The first year subscription fees are typicallypayable within 30 days after the execution of the arrangement, and thereafter upon renewal. The Company initially records the subscription fees asdeferred revenue and recognizes revenue on a straight-line basis over the term of the agreement. At any time during the subscription period,customers may increase the number of their users or subscribe for additional products. Additional user fees and additional product subscriptionsare payable for the remainder of the initial or extended contract term. Subscription and support revenue also includes software revenue related tomaintenance and support fees on legacy BlackLine solutions and software license and maintenance revenue on Runbook software sales asdescribed below.Professional services – The Company offers its customers assistance in implementing its SaaS solutions and optimizing their use.Professional services include consulting and training. These services are billed on either a fixed fee or time-and-material basis. Revenues fromtime-and-material arrangements are recognized as services are performed and revenues from fixed fee arrangements are initially recorded asdeferred revenue and recognized on a proportional performance basis as the services are performed.The Company recognizes subscription and professional services revenues when (i) persuasive evidence of an arrangement for the sale ofthe Company’s solutions or consulting services exists, (ii) the solutions have been made available or delivered, or services have been performed,(iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The timing and amount the Company recognizes asrevenue is determined based on the facts and circumstances of each customer’s arrangement. Evidence of an arrangement consists of a signedcustomer agreement. The Company considers that delivery of a solution has commenced once it provides the customer with log-in information toaccess and use the solution. Fees are fixed based on stated rates specified in the customer agreement. The Company assesses collectabilitybased on a number of factors, including the creditworthiness of the customer, review of their financial information or transaction history. Ifcollectability is not considered reasonably assured, revenue is deferred until the fees are collected.The majority of customer arrangements include multiple deliverables, such as subscriptions to the Company’s SaaS solutions andprofessional services. The Company recognizes revenue in accordance with the guidance for arrangements with multiple deliverables underAccounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements – a Consensus ofthe Emerging Issues Task Force. For subscription agreements, as customers do not have the right to the software code underlying the Company’ssolutions, subscription revenue arrangements are outside the scope of software revenue recognition guidance as defined by ASC 985-605,Software. The Company’s agreements do not contain any refund provisions other than in the event of the Company’s non-performance or breach.80 For multiple-deliverable revenue arrangements, the Company first assesses whether each deliverable has value to the customer on astandalone basis. The Company has determined that the SaaS products have standalone value because, once access is given to the customer,the solutions are fully functional and do not require any additional development, modification or customization. Professional services havestandalone value because third-party partners and customers themselves can perform these services without the Company’s involvement. Theperformance of these professional services generally does not require highly specialized or technologically skilled individuals and the professionalservices are not essential to the functionality of the solutions.The Company allocates revenue among the separate non-contingent deliverables in an arrangement under the relative selling price methodusing the selling price hierarchy established in ASU 2009-13. This hierarchy requires the selling price of each deliverable in a multiple deliverablearrangement to be based on, in descending order, (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of fair value(“TPE”) or (iii) management’s best estimate of selling price (“BESP”).The Company is not able to determine VSOE or TPE for its deliverables because the deliverables are typically bundled and infrequently soldseparately within a consistent price range. Additionally, management has determined that there are no third-party offerings reasonably comparableto the Company’s solutions. Therefore, the selling prices of subscriptions to the SaaS solutions and professional services are based on BESP.The determination of BESP requires the Company to make significant estimates and judgments. The Company considers numerous factors,including the nature of the deliverables themselves, geography, customer size and number of users, and discounting practices. The determinationof BESP is made through consultation with senior management. The Company updates its estimates of BESP on an ongoing basis as events andcircumstances may require. As the Company’s marketing strategies evolve, the Company may modify its pricing practices in the future, whichcould result in changes in relative selling prices and BESP.The Company uses business process outsourcers (“BPOs”) and resellers to complement its direct sales and marketing efforts. The BPOsand resellers place orders with the Company after receiving an order from an end customer. The BPOs and resellers receive business terms ofsale similar to those received by the Company’s direct customers, and payment to the Company is not contingent on the receipt of payment fromthe end customer. The BPOs and resellers negotiate pricing with the end customer and are responsible for implementation services, if any, and forcertain support levels directly with the end customer. The Company recognizes revenue over the term of the arrangement for the contractualamount charged to the BPO or reseller once access to the Company’s solution has been provided to the end customer provided that the otherrevenue recognition criteria noted above have been met.Subscription and support revenues also include revenues associated with sales of software licenses and related support. Prior to thedevelopment of the Company’s SaaS solutions, the Company sold software licenses and post contract support related to its legacy software inaccordance with ASC 985-605. The Company continues to provide post contract support for this legacy software to a limited number of customersthat have not yet migrated to the SaaS solution. The Company no longer develops any new applications or functionality for the legacy softwarelicensed to customers.On August 31, 2016, the Company acquired Runbook, a Netherlands-based provider of licensed financial close automation software andintegration for SAP customers. The Company plans to migrate Runbook’s licensed products to a cloud-based platform, but the Companycontinues to sell Runbook’s on-premise software to existing Runbook customers and provide post-contract support and implementation services. Revenues recognized from sales of software licenses, support and implementation services related to software arrangements comprisedapproximately 1%, 1% and 3% of total revenues for the years ended December 31, 2016, 2015 and 2014, respectively.Taxes collected from customers are accounted for on a net basis and are excluded from revenue.Cost of revenuesCost of revenues primarily consists of costs related to hosting the Company’s cloud-based application suite, salaries and benefits ofoperations and support personnel, including stock-based compensation, and amortization of capitalized internal-use software costs. The Companyallocates a portion of overhead, such as rent, IT costs and depreciation and amortization to cost of revenues. Costs associated with providingprofessional services are expensed as incurred when the services are performed. In addition, subscription and support cost of revenues includesamortization of acquired developed technology.81 Sales and marketingSales and marketing expenses consist primarily of compensation and employee benefits, including stock-based compensation, of sales andmarketing personnel and related sales support teams, sales and partner commissions, marketing events, advertising costs, travel, trade shows,other marketing materials, and allocated overhead. Sales and marketing expenses also include amortization of customer relationship intangibleassets. Advertising costs are expensed as incurred and totaled $4.2 million, $3.0 million and $1.5 million for the years ended December 31, 2016,2015 and 2014, respectively.Deferred sales commissionsDeferred sales commissions are the incremental costs that are directly associated with non-cancelable subscription contracts withcustomers and consist of sales commissions paid to the Company’s direct sales force and third-party partners. The commissions are deferred andamortized over the non-cancelable terms of the related customer contracts, which are typically one year in duration. The commission paymentsare paid in full the month after the customer’s service commences. The deferred commission amounts are recoverable through the future revenuestreams under the non-cancelable customer contracts. The Company believes this is the preferable method of accounting as the salescommission charges are so closely related to the revenue from the non-cancelable customer contracts and accordingly, should be recorded as anasset and charged to expense over the same period that the subscription revenue is recognized. Amortization of deferred sales commissions isincluded in sales and marketing in the accompanying consolidated statements of operations. As of December 31, 2016 and 2015, deferredcommission costs, net of accumulated amortization were $9.7 million and $6.2 million, respectively. Amortization of commission costs was$13.2 million, $7.3 million and $2.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.Research and developmentResearch and development expenses are comprised primarily of salaries, benefits and stock-based compensation associated with theCompany’s engineering, product and quality assurance personnel. Research and development expenses also include third-party contractors andsupplies and allocated overhead. Other than software development costs that qualify for capitalization, as discussed above, research anddevelopment costs are expensed as incurred.General and administrativeGeneral and administrative expenses consist primarily of personnel costs associated with the Company’s executive, finance, legal, humanresources, compliance, and other administrative personnel, as well as accounting and legal professional services fees, other corporate-relatedexpenses and allocated overhead. General and administrative expenses also include amortization of covenant not to compete and tradenameintangible assets, the change in value of the contingent consideration and acquisition-related costs of business combinations.Stock-based compensationThe Company accounts for stock-based compensation awards granted to employees and directors based on the awards’ estimated grantdate fair value. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model. For awards that vestsolely based on continued service (“service-only vesting conditions”), the resulting fair value, net of estimated forfeitures, is recognized on astraight-line basis over the period during which an employee is required to provide service in exchange for the award, usually the vesting period,which is generally four years. The Company recognizes the fair value of stock options which contain performance conditions based upon theprobability of the performance conditions being met, net of estimated forfeitures, using the graded vesting method. Estimated forfeitures are basedupon the Company’s historical experience and the Company revises its estimates, if necessary, in subsequent periods if actual forfeitures differfrom initial estimates.Determining the grant date fair value of options using the Black-Scholes option-pricing model requires management to make assumptionsand judgments. These estimates involve inherent uncertainties and, if different assumptions had been used, stock-based compensation expensecould have been materially different from the amounts recorded.82 The assumptions and estimates are as follows:Value per share of the Company’s common stock. Prior to the Company’s initial public offering in October 2016, because there was nopublic market for the Company’s common stock, the Company’s management, with the assistance of a third-party valuation specialist, determinedthe fair value of the Company’s common stock at the time of the grant of stock options by considering a number of objective and subjectivefactors, including the Company’s actual operating and financial performance, market conditions and performance of comparable publicly-tradedcompanies, developments and milestones in the Company, the likelihood of achieving a liquidity event and transactions involving the Company’scommon stock, among other factors. The fair value of the underlying common stock was determined by the Company’s board of directors throughthe date of the initial public offering. The fair value of the Company’s common stock was determined in accordance with applicable elements of thepractice aid issued by the American Institute of Certified Public Accountants, Valuation of Privately Held Company Equity Securities Issued asCompensation. For awards granted subsequent to the Company’s initial public offering, the fair value of common stock is based on the closingprice of the Company’s common stock, as reported on the NASDAQ, on the date of grant.Expected volatility. The Company determines the expected volatility based on historical average volatilities of similar publicly-tradedcompanies corresponding to the expected term of the awards.Expected term. The Company determines the expected term of awards which contain service-only vesting conditions using the simplifiedapproach, in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award,as the Company does not have sufficient historical data relating to stock option exercises. For awards granted which contain performanceconditions, the Company estimates the expected term based on estimates of post-vesting employment termination behavior taking into accountthe life of the award.Risk-free interest rate. The risk-free interest rate is based on the United States Treasury yield curve in effect during the period the optionswere granted corresponding to the expected term of the awards.Estimated dividend yield. The estimated dividend yield is zero, as the Company does not currently intend to declare dividends in theforeseeable future.The following information represents the weighted average of the assumptions used in Black-Scholes option-pricing model: Year ended December 31, 2016 2015 2014 Expected term (years) 6.3 6.3 6.2 Expected volatility 47.5% 49.6% 54.0%Risk free interest rate 1.4% 1.7% 1.9%Expected dividends — — — Income taxesThe Company accounts for income taxes in accordance with ASC 740, Income Taxes. ASC 740 requires the recognition of deferred taxassets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases ofassets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets andliabilities is recognized in the consolidated statements of operations in the period that includes the enactment date. A valuation allowance isrecorded when it is more likely than not that some of the deferred tax assets will not be realized.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustainedon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financialstatements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized. TheCompany recognizes interest and penalties accrued with respect to uncertain tax positions, if any, in the provision for income taxes in theconsolidated statements of operations.83 Net loss per shareBasic and diluted loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding.As the Company has net losses for the periods presented, all potentially dilutive common stock, which are comprised of stock options andwarrants, are antidilutive.As of December 31, 2016 and 2015, the following potentially dilutive shares have been excluded from the calculation of diluted net loss pershare attributable to common stockholders because they are anti-dilutive: December 31, 2016 2015 Options to purchase common stock 6,556,986 5,904,376 Common stock warrants 499,999 499,999 Total shares excluded from net loss per share 7,056,985 6,404,375 Foreign currencyThe Company’s foreign subsidiaries’ functional currency is the U.S. Dollar. The foreign exchange impacts of remeasuring the foreignsubsidiaries’ local currency to the U.S. Dollar functional currency is recorded in general and administrative expenses, net in the Company’sconsolidated statements of operations. Monetary assets and liabilities of foreign operations are remeasured at balance sheet date exchange rates,non-monetary assets and liabilities and equity are remeasured at the historical exchange rates, while results of operations are remeasured ataverage exchange rates in effect for the period. Foreign currency transaction gains or losses were immaterial for each period presented.Recently issued accounting standardsUnder the Jumpstart Our Business Startups Act, or the JOBS Act, the Company meets the definition of an emerging growth company. TheCompany has irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant toSection 107(b) of the JOBS Act.In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance related to revenue from contracts with customers. Underthis guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the considerationthat is expected to be received for those goods or services. The updated standard will replace all existing revenue recognition guidance underGAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASBvoted to defer the effective date to January 1, 2018, with early adoption beginning January 1, 2017. In March, April, May, and December 2016, theFASB issued amendments to the new guidance relating to reporting revenue on a gross versus net basis, identifying performance obligations andlicensing arrangements and other narrow scope improvements. The Company will adopt the new revenue guidance in the first quarter of 2018though has not yet determined whether to adopt using a full retrospective or modified retrospective approach. The Company is currently assessingthe impact of the new revenue guidance on its arrangements. The Company currently believes that the new guidance will impact the amountand timing of incremental costs of obtaining a contract, such as sales commissions. The Company generally does not pay sales commissionsupon contract renewal and therefore, under the new revenue guidance, the sales commissions will be recognized over an estimated customer liferather than over the non-cancelable term under current guidance. The new guidance is also expected to impact the Company’s arrangementssubject to current software revenue recognition guidance and also require incremental disclosures of the Company’s revenue arrangements. TheCompany has not yet quantified the impact of these changes. Adoption of this standard will also require changes to the Company’s businessprocesses, systems and controls to support the new revenue recognition guidance. The Company is in the process of identifying such changes.In February 2016, the FASB issued new guidance which significantly changes the accounting for leases. The new guidance requires alessee recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to usethe 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 electionby class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expensefor 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 resultin a front-loaded expense pattern similar to existing capital lease guidance. For statement of cash flow purposes, the new guidance also retainedthe existing dual method, where cash payments for operating leases84 are reflected in cash flows from operating activities and principal and interest payments for finance leases are reflected in cash flows fromfinancing activities and cash flows from operating activities, respectively. The new guidance is effective for fiscal years beginning after December15, 2018 and interim periods within those fiscal years. The new guidance requires the recognition and measurement of leases at the beginning ofthe earliest period presented using a modified retrospective approach. The use of the modified retrospective approach allows an entity to use anumber of practical expedients in the application of this new guidance. Although the Company is evaluating the impact of adopting this guidanceon its consolidated financial statements, the Company expects that most of its operating lease commitments will be recognized as operating leaseliabilities and right-of-use assets upon adoption of the new guidance.In March 2016, the FASB issued new guidance to simplify various aspects relating to accounting for stock-based compensation and relatedtax impacts, the classification of excess tax benefits on the statement of cash flows, statutory tax withholding requirements and other stock-based compensation classification matters. The guidance is effective for annual reporting periods beginning after December 15, 2016 and interimperiods within those annual periods. Early adoption was permitted in any interim or annual period. All of the amendments in the new guidancemust be adopted in the same period. The Company is required to adopt this guidance during the first quarter ending March 31, 2017. TheCompany expects to adopt a policy to account for forfeitures when they occur rather than estimate a forfeiture rate. The impact of this change inpolicy will be recorded as an adjustment to the January 1, 2017 accumulated deficit and additional paid-in capital balances, which the Companydoes not expect to be material. The new standard also requires the Company to record, on a prospective basis, the income tax effects of stock-based compensation awards in the income statement as discrete items in the reporting period in which they occur, which will increase volatility inthe Company’s income tax provision in the future. In addition, any previously unrecognized tax benefits will be recorded as an adjustment toaccumulated deficit, subject to assessment for the need for a valuation allowance, as of January 1, 2017. The Company had $36.7 million of netoperating losses related to tax benefits for stock-based compensation awards as of December 31, 2016 which were not recorded as deferred taxassets. As the Company has a full valuation allowance against its deferred tax assets, the Company does not expect this new guidance relating torecording unrecognized tax benefits on the balance sheet will have a material impact on the Company’s balance sheet upon adoption.In June 2016, the FASB issued guidance which requires that financial assets measured at amortized costs be presented at the net amountexpected to be collected. This guidance amends the accounting for credit losses for available-for-sale securities and purchased financial assetswith credit deterioration. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annualperiods. Early adoption is permitted for any interim or annual period after December 15, 2018. The Company has not determined the impact of thisguidance on its consolidated financial statements.In August 2016, the FASB issued cash flow guidance which addresses eight specific cash flow issues with the objective of reducing theexisting diversity in practice, including presentation of cash flows relating to contingent consideration payments, debt prepayment and debtextinguishment costs, among other matters. This guidance is effective for fiscal years beginning after December 15, 2017 and interim periodswithin those fiscal years. Early adoption is permitted, including adoption in an interim period. If adopted in an interim period, any adjustmentsshould be reflected as of the beginning of the fiscal year that includes the interim period. The adoption of this guidance should be applied using aretrospective transition method to each period presented, unless impracticable to do so. The Company early adopted this during the fourth quarterof 2016 and, as a result, classified debt prepayment costs of $0.7 million incurred in November 2016 upon repayment in full of its credit facility asa financing cash outflow. The adoption of this guidance had no impact on amounts previously reported in prior years or the first three quarterswithin 2016.In November 2016, the FASB issued guidance which requires that restricted cash and restricted cash equivalents be included with cash andcash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. This guidance is effective forfiscal years beginning after December 15, 2017, and interim periods within those years, and should be applied using a retrospective transitionmethod to each period presented. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments inan interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company’srestricted cash as of December 31, 2016 and 2015 was $0.4 million and therefore, the adoption of this guidance is not expected to have a materialimpact on the Company’s consolidated statements of cash flows. In February 2017, the FASB issued guidance which simplifies the subsequent measurement of goodwill by no longer requiring an entity todetermine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets andliabilities as if that reporting unit had been acquired in a business combination. Under this new guidance, an entity would perform its goodwillimpairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment charge for the amountby which the carrying85 amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to thatreporting unit. Additionally, an entity would consider income tax effects from any tax deductible goodwill on the carrying amount of the reportingunit when measuring the goodwill impairment loss, if applicable. Under the new guidance, an entity continues to have the option to perform thequalitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This guidance is effective for fiscal yearsbeginning after December 15, 2019 and interim periods within those years. Early adoption is permitted for interim or annual goodwill impairmenttests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on theCompany’s consolidated financial statements.Note 3—Property and equipmentProperty and equipment consisted of the following at December 31, 2016 and 2015 (in thousands): December 31, 2016 2015 Computers and equipment $3,287 $2,173 Purchased software 3,829 2,501 Furniture and fixtures 1,725 1,852 Leasehold improvements 6,888 7,670 Construction in progress 523 1,274 16,252 15,470 Less: accumulated depreciation (4,934) (3,051) $11,318 $12,419 Depreciation expense was $3.1 million, $1.8 million and $1.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.Software and construction in progress includes assets held under capital lease of $1.6 million as of December 31, 2016 and 2015, reducedby related accumulated amortization thereon of $0.4 million and $0.1 million, respectively. Note 4 – Business combinationOn August 31, 2016, the Company acquired all the issued and outstanding capital stock of Runbook, a Netherlands-based provider offinancial close automation software and integration solutions for SAP. The purpose of the acquisition was to enhance the Company’s position as aleading provider of software solutions to automate the financial close process for SAP customers and supports the Company’s Europeanexpansion strategy. The acquisition has been accounted for as a business combination under GAAP. The total purchase consideration was approximately $34.1 million, subject to a final working capital adjustment, which was paid incash. Upon the finalization of the working capital adjustment, the amount of the purchase price allocated to goodwill may change. A portion of thepurchase price totaling $3.1 million, was paid into escrow for indemnification obligations relating to potential breach of representations andwarranties of the sellers and any amounts remaining in escrow after satisfaction of any resolved claims, will be released from escrow on the one-year anniversary of the acquisition. Acquisition-related costs incurred by the Company of approximately $1.6 million were expensed as incurredand are included in general and administrative expenses in the consolidated statements of operations.86 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of the acquisition (inthousands): Total cash consideration to selling shareholders $34,052 Assets acquired and liabilities assumed Cash and cash equivalents 2,564 Accounts receivable 2,518 Prepaid expenses and other current assets 718 Property and equipment 427 Intangible assets 9,790 Accounts payable (285)Accrued expenses and other current liabilities (376)Deferred revenue (501)Net deferred income tax liabilities (2,787)Net assets 12,068 Goodwill $21,984 The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to expected synergies from assembledworkforce, an increase in development capabilities, increased offerings to customers, and enhanced opportunities for growth and innovation. Thegoodwill resulting from the acquisition is not tax deductible.To determine the estimated fair value of intangible assets acquired, the Company engaged a third-party valuation specialist to assistmanagement. The fair value measurements of the intangible assets were based primarily on significant unobservable inputs and thus represent aLevel 3 measurement as defined in ASC 820. The acquired intangible asset categories, fair value and amortization periods, were as follows: AmortizationPeriod Fair Value(in thousands) Trade name 1 year $20 Developed technology 8 years 5,710 Non-compete agreements 2 years 180 Customer relationships 10 years 3,880 $9,790 The weighted average lives of intangible assets at the acquisition date was 8.7 years. Unaudited Pro forma informationThe following table presents the Company’s unaudited pro forma information for the years ended December 31, 2016 and 2015 as if theacquisition occurred on January 1, 2015 (in thousands): Year Ended December 31, 2016 2015 Pro forma total revenues $128,196 $88,303 Pro forma net loss (39,000) (28,161)Pro forma net loss per share, basic and diluted (0.92) (0.69) The pro forma results reflect certain adjustments for the depreciation and amortization of the fair values of the intangible assets acquired,adjustments to revenue resulting from the fair value adjustment to deferred revenue, acquisition-related costs, and related tax adjustments. Suchpro forma amounts are not necessarily indicative of the results that actually would have occurred had the acquisition been completed on the dateindicated, nor is it indicative of the future operating results of the Company.The total amount of Runbook revenue and net loss included in the Company’s consolidated results of operations from the date of acquisitionto December 31, 2016 was $0.8 million and $1.7 million, respectively. 87 Note 5—Intangible assets and GoodwillThe carrying value of intangible assets as of December 31, 2016 and 2015 was as follows (in thousands): December 31, 2016 GrossCarryingAmount AccumulatedAmortization Net CarryingAmount Trade name $15,977 $(5,361) $10,616 Developed technology 42,558 (20,694) 21,864 Non-compete agreements 4,520 (2,924) 1,596 Customer relationships 31,783 (11,741) 20,042 $94,838 $(40,720) $54,118 December 31, 2015 GrossCarryingAmount AccumulatedAmortization Net CarryingAmount Trade name $15,964 $(3,727) $12,237 Developed technology 36,844 (14,326) 22,518 Non-compete agreements 4,341 (2,026) 2,315 Customer relationships 27,894 (8,136) 19,758 $85,043 $(28,215) $56,828 Amortization expense is included in the following functional statement of operations expense categories. Amortization expense was asfollows (in thousands): Year ended December 31, 2016 2015 2014 Cost of revenue $6,368 $6,139 $6,139 Sales and marketing 3,605 3,487 3,487 General and administrative 2,532 2,466 2,466 $12,505 $12,092 $12,092 The following table presents the Company’s estimate of remaining amortization expense for each of the five succeeding fiscal years andthereafter for finite-lived intangible assets at December 31, 2016 (in thousands): 2017 $13,285 2018 12,966 2019 10,280 2020 6,187 2021 5,024 Thereafter 6,376 $54,118 The change in the carrying amount of goodwill is as follows (in thousands): Goodwill as of December 31, 2014 $163,154 Activity during fiscal 2015 — Goodwill as of December 31, 2015 163,154 Acquisition of Runbook 21,984 Goodwill as of December 31, 2016 $185,138 88 Note 6—Accrued expenses and other current liabilitiesAt December 31, 2016 and 2015, accrued expenses and other current liabilities were comprised of the following (in thousands): December 31, 2016 2015 Accrued salary and employee benefits $11,589 $9,716 Accrued income and other taxes payable 1,553 1,047 Short-term portion of capital lease 992 558 Accrued commissions to third party partners 2,081 2,305 Accrued initial public offering costs 110 419 Accrued professional services costs 454 16 Other accrued expenses 2,152 951 $18,931 $15,012 Note 7—Term LoanIn September 2013, the Company entered into a $25 million term loan agreement (the “Term Loan”). The Term Loan had a term of fiveyears and expired and was repayable on September 25, 2018. The Term Loan bore interest at (i) the greater of LIBOR or 1.5% plus (ii) 8%. InMarch 2016 and August 2016, the Company amended its credit facility to add an additional $5.0 million term loan (the “2016 Incremental TermLoan”) and to add an additional $30 million term loan (the “2016 Acquisition Term Loan”), respectively. Both the 2016 Incremental Term Loan andthe 2016 Acquisition Term Loan had similar terms and conditions to the original Term Loan, and both were subject to prepayment penalties if theCompany elected to repay the loans before the expiration date. The term loans bore interest at a rate of 9.5% per annum. Under the provisions ofeach term loan, the Company had the option to pay interest in varying amounts in cash or in payment in kind. For the years ended December 31,2016, 2015 and 2014, interest of $1.8 million, $2.1 million and $2.0 million, respectively, was paid in kind, thereby increasing the outstandingprincipal. Interest paid in kind was due and payable at maturity of each term loan. In November 2016, the Company repaid in full all outstandingdebt under the Company’s credit facility and terminated the agreement, as amended. In connection with the termination of the agreement, theCompany paid a total of approximately $67.7 million, which included principal, accrued interest, paid in kind interest, and prepayment penalties.Prepayment penalties of $0.7 million were expensed to interest expense in November 2016 upon repayment and termination of the creditfacility. Upon the termination of the credit facility, accumulated paid in kind interest of $6.4 million was repaid and has been classified in cashflows from operating activities. The Company incurred $1.1 million, $0.2 million and $0.5 million in transaction costs and fees payable to the lender related to theissuance of the Term Loan, the 2016 Incremental Term Loan, and the 2016 Acquisition Term Loan, respectively. These amounts, net ofamortization, had been presented as a discount against the carrying amount of the term loans. In November 2016, in connection with therepayment of the Company’s term loans and termination of its credit facility, the Company expensed the remaining unamortized debt issuancecosts of $1.1 million to interest expense in the accompanying consolidated statements of operations.In conjunction with Term Loan, the Company issued warrants to purchase 499,999 shares of common stock at an exercise price per shareof $5.00. The warrants are exercisable at any time by the holder and expire upon the earlier of ten years from the issuance date or the sale of theCompany. At December 31, 2016, the warrants remain outstanding. The carrying value of the Term Loan was reduced by the fair value of thewarrants at issuance of $1.4 million. The resulting debt discount was being amortized over the term of the debt on a straight-line basis whichapproximates the effective interest method. The amortization of the debt discount was recorded in interest expense in the consolidated statementsof operations. In November 2016, in connection with the repayment of the Company’s term loans and termination of its credit facility, theCompany expensed the remaining unamortized debt issuance costs associated with the issuance of the warrants of $0.5 million to interestexpense in the consolidated statements of operations. 89 Note 8—Income taxesThe components of income (loss) before income taxes for the years ended December 31, 2016, 2015 and 2014 were as follows (inthousands): Year ended December 31, 2016 2015 2014 United States $(45,123) $(39,350) $(25,387)International (623) 903 461 $(45,746) $(38,447) $(24,926) The components of the total benefit from income taxes for the years ended December 31, 2016, 2015 and 2014 were as follows (inthousands): Year ended December 31, 2016 2015 2014 Current Federal $— $— $— State 5 7 1 International 840 221 108 Total current tax expense 845 228 109 Deferred Federal (6,086) (12,468) (7,111)State (202) (1,473) (1,172)International (1,144) — — Total deferred tax benefit (7,432) (13,941) (8,283)Total benefit from income taxes $(6,587) $(13,713) $(8,174) A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2016,2015 and 2014 was as follows: Year ended December 31, 2016 2015 2014 Federal statutory income tax rate 34.0% 34.0% 34.0%State tax, net of federal benefit 3.0% 4.0% 3.1%Federal tax credits 1.2% 1.1% 0.6%Change in valuation allowance (16.5%) (2.3%) — Common stock warrants (4.4%) (0.4%) (5.0%)Other (2.9%) (0.7%) 0.1% 14.4% 35.7% 32.8%90 Significant components of the Company’s deferred tax assets and liabilities at December 31, 2016 and 2015 were as follows (in thousands): Year ended December 31, 2016 2015 Deferred tax assets Accrued expenses and other current liabilities $1,065 $1,147 Business credits 2,913 1,962 Stock-based compensation 4,393 2,488 Net operating loss carryover 21,151 13,586 Other 1,253 358 Total deferred tax assets 30,775 19,541 Less: valuation allowance (8,489) (887)Deferred tax assets, net of valuation allowance 22,286 18,654 Deferred tax liabilities Property and equipment (1,250) (1,473)Common stock warrants — (63)Intangible assets (20,439) (21,800)Prepaid expenses (1,859) (1,225)Total deferred tax liabilities (23,548) (24,561)Net deferred taxes $(1,262) $(5,907) ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to theextent that management assesses that realization is "more likely than not." A valuation allowance is recorded when it is more likely than not thatsome of the deferred tax assets will not be realized. Realization of future tax benefits is dependent on the Company’s ability to generate sufficienttaxable income within the carryforward period. For financial reporting purposes, the Company has incurred losses for each of the past three years.Based on available objective evidence, including the company’s history of losses, management believes it is more likely than not that the netdeferred tax assets will not be fully realizable. Accordingly, the Company provided a valuation allowance against its federal and state deferred taxassets. The Company’s foreign tax jurisdictions were in a net deferred tax liability position as of December 31, 2016.The change in the valuation allowance for the years ended December 31, 2016 and 2015 was as follows (in thousands). There was novaluation allowance for the year ended December 31, 2014. December 31, 2016 2016 2015 Valuation allowance, at beginning of year $887 $— Increase in valuation allowance 7,602 887 Valuation allowance, at end of year $8,489 $887 The Company did not provide for United States income taxes on the undistributed earnings and other outside temporary differences offoreign subsidiaries as they are considered indefinitely reinvested outside the United States. As of December 31, 2016 and 2015 the amount oftemporary differences related to undistributed earnings and other outside temporary differences upon which United States income taxes have notbeen provided is immaterial to these consolidated financial statements.As of December 31, 2016, the Company had consolidated federal and state net operating loss carryforwards available to offset futuretaxable income of approximately $94.7 million and $90.9 million, respectively. The federal losses will begin to expire in 2033, and the state losseswill begin to expire between 2023 and 2033, depending on the jurisdiction. The Company has federal research and development credits and foreigntax credits of $1.1 million and $0.6 million, respectively, which begin to expire on 2033 and 2023, respectively. The Company has state researchand development credits and enterprise zone credits of $1.8 million and $0.6 million, respectively, which are indefinite in expiration and begin toexpire by 2023, respectively. Pursuant to Internal Revenue Code Section 382, use of the Company’s net operating loss carryforwards may belimited if the Company experiences a cumulative change in ownership of more than 50% over a three-year period.91 At December 31, 2016, $36.7 million of net operating losses related to tax benefits for stock-based compensation resulting from gains thatcertain individual option holders experienced from the exercise are not included in the deferred tax assets. The following is a roll forward of the Company’s total gross unrecognized tax benefits (in thousands): Total Gross unrecognized tax benefits, December 31, 2013 $153 Increase related to positions taken in the year ended December 31, 2014 35 Total gross unrecognized tax benefits, December 31, 2014 188 Increase related to positions taken in the year ended December 31, 2015 90 Total gross unrecognized tax benefits, December 31, 2015 278 Increase related to positions taken in the year ended December 31, 2016 104 Total gross unrecognized tax benefits, December 31, 2016 $382 As of December 31, 2016, the realization of unrecognized tax benefits are not expected to impact the effective rate due to a full valuationon federal and state deferred taxes. The Company has not recorded any interest or penalties in its benefit from income taxes for the years endedDecember 31, 2016, 2015 and 2014 and no such amounts have been accrued as of December 31, 2016 and 2015. The Company files U.S. federal, various state and foreign income tax returns. In the normal course of business, the Company is subject toexamination by taxing authorities. The tax years 2013, 2014, and 2015 remain subject to examination for federal purposes. Generally, state andforeign tax authorities may examine the Company’s tax returns for four years and five years, respectively, from the date an income tax return isfiled. However, the taxing authorities may continue to adjust the Company’s federal and state net operating loss carryforwards until the statute oflimitations closes on the tax years in which the federal and state net operating losses are utilized.The consolidated federal tax filings are under examination by the Internal Revenue Service for the 2014 tax year. The Company does notanticipate any material adjustments as a result of the examination. While it is often difficult to predict the outcome or the timing or resolution ofany particular tax position, the Company believes no reserves for income taxes are necessary as a result of this audit.The Company does not anticipate either material changes in the total amount or composition of its unrecognized tax benefits within 12months of the reporting date.Note 9—Contingent considerationOn September 3, 2013, the Company acquired BlackLine Systems, Inc. Under the terms of the acquisition agreement, BlackLine Systems,Inc.’s option holders were allowed to cancel their stock option rights and receive a cash payment equal to the amount of calculated gain (lessapplicable expense and other items) had they exercised their stock options and then sold their common shares as part of the acquisition. As acondition of the acquisition, the Company is required to pay additional cash consideration to certain equity holders if the Company realizes a taxbenefit from the use of net operating losses generated from the stock option exercises concurrent with the acquisition. The maximum contingentcash consideration to be distributed is $8.0 million. The fair value of the contingent consideration was $5.2 million and $4.9 million as ofDecember 31, 2016 and 2015, respectively. See Note 2—Significant accounting policies—Fair value of financial instruments for additionalinformation regarding the valuation of the contingent consideration.92 Note 10—Commitments and contingenciesOperating leases—The Company has various non-cancelable operating leases for its corporate and international offices. These leasesexpire at various times through 2023. Certain lease agreements contain renewal options, rent abatement and escalation clauses. The Companyrecognizes rent expense on a straight-line basis over the lease term, commencing when the Company takes possession of the property. Certain ofthe Company’s office leases entitle the Company to receive a tenant allowance from the landlord. The Company records tenant allowances as adeferred rent credit, which the Company amortizes on a straight-line basis, as a reduction of rent expense, over the term of the underlying lease.Total rent expense under the operating leases was approximately $2.9 million, $2.5 million and $1.8 million for the years ended December 31,2016, 2015 and 2014, respectively.Future minimum lease payments under non-cancelable operating leases are as follows for the years ended December 31 (in thousands): 2017 $3,830 2018 2,616 2019 2,232 2020 1,963 2021 1,831 Thereafter 2,122 $14,594 Capital leases—The Company leases computer software from various parties under capital lease agreements. Outstanding principalpayments under capital lease obligations were $1.0 million as of December 31, 2016, which is payable in full in 2017.Litigation—From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary courseof business. The Company is not currently a party to any legal proceedings, nor is it aware of any pending or threatened litigation, that would havea material adverse effect on the Company’s business, operating results, cash flows, or financial condition should such litigation be resolvedunfavorably.Indemnification—In the ordinary course of business, the Company may provide indemnification of varying scope and terms to customers,vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of suchagreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties. Theseindemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future payments theCompany could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The maximum potentialamount of future payments the Company could be required to make under these indemnification provisions is indeterminable. The Company hasnever paid a material claim, nor has it been sued in connection with these indemnification arrangements. As of December 31, 2016 and 2015, theCompany has not accrued a liability for these indemnification arrangements because the likelihood of incurring a payment obligation, if any, inconnection with these indemnification arrangements was not probable or reasonably estimable.Note 11—CapitalizationAs of December 31, 2016, the authorized capital stock of the Company consisted of 500 million shares of common stock and 50 millionshares of preferred stock. No shares of preferred stock are issued and outstanding at December 31, 2016. The board of directors can determinethe voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of the preferred stock.As of December 31, 2016, the Company had reserved for issuance 7.1 million shares of common stock from its available but unissuedauthorized shares, consisting of 5.9 million shares issuable upon the exercise of stock options under the Company’s 2014 and 2016 EquityIncentive plans, 0.7 million shares issuable upon the exercise of performance-based stock options, and warrants to purchase 0.5 million shares ofcommon stock.On January 14, 2016, the board of directors approved the retirement of 47,000 shares of treasury stock.93 In September 2016, the Company raised gross proceeds of $3.1 million from the sale of 192,187 shares of common stock to formerRunbook employees.On November 2, 2016, the Company completed its initial public offering in which it issued and sold 9,890,000 shares of its common stock,which included the exercise in full of the underwriters’ option to purchase an additional 1,290,000 shares at an initial offering price of $17.00 pershare. The Company received proceeds from the offering of approximately $151.9 million after deducting underwriting discounts and commissionsand other offering expenses. Note 12—Stock options2014 and 2016 PlansOn March 3, 2014, the Company adopted the 2014 Stock Incentive Plan (the “2014 Plan”). In November 2016, upon the completion of theCompany’s initial public offering, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”) and determined that it will no longer grantany additional awards under the 2014 Plan. However, the 2014 Plan continues to govern the terms and conditions of the outstanding awardspreviously granted under the 2014 plan. Upon the adoption of the 2016 Plan, the maximum number of shares issuable was 6.2 million, plus anumber of shares equal to the number of shares subject to outstanding awards granted under the 2014 Plan after the date the 2014 Plan isterminated without having been exercised in full. The Company’s board of directors may grant stock options to employees, directors andconsultants under the 2016 Plan. The aggregate number of shares available under the 2016 Plan and the number of shares subject to outstandingoptions automatically adjusts for any changes in the Company’s outstanding common stock by reason of any recapitalization, spin-off,reorganization, reclassification, stock dividend, stock split, reverse stock split, or similar transaction. Stock options generally vest over four yearsand have contractual terms of ten years.As of December 31, 2016, 6,188,425 shares were available for issuance under the 2016 Plan.Stock options with service-only vesting conditionsA summary of the Company’s stock option activity and related information for the year ended December 31, 2016 for awards that containservice-only vesting conditions was as follows: Shares WeightedAverageExercise PriceWeightedAverageRemainingContractualTerm (Years) AggregateIntrinsicValue(in thousands) Outstanding at December 31, 2015 5,904,376 $8.62 8.6 $37,788 Granted 1,072,920 14.65 Exercised (522,450) 5.84 Forfeited (580,660) 7.47 Outstanding at December 31, 2016 5,874,186 $10.09 8.0 $103,038 Exercisable at December 31, 2016 1,925,687 $7.79 7.5 $38,212 Vested and expected to vest at December 31, 2016 5,506,193 $10.05 8.0 $96,799 The weighted average grant date fair value per share of options granted during the years ended December 31, 2016 and 2015 that containservice only vesting conditions were $6.78 and $7.04, respectively. The aggregate intrinsic value of options exercised that contain service onlyvesting conditions during the years ended December 31, 2016 and 2015 were $4.8 million and $2.6 million, respectively.Unrecognized compensation expense relating to stock options that contain service only vesting conditions was $15.8 million atDecember 31, 2016, which is expected to be recognized over a weighted-average period of 2.6 years.Stock options with performance conditionsIn October 2016, the Company granted options to purchase 682,800 shares of common stock at an exercise price of $14.00 per share totwo executive officers that vest upon meeting certain performance conditions and continued service. The performance conditions include meetingyearly cash flow targets and cumulative annual recurring revenue targets through 2019. If each yearly cash flow target is met through 2019, but thefull cumulative annual recurring target through 2019 is not met, the executive officers are still able to vest in the award if an additional cash flowtarget for 2020 and a94 cumulative annual recurring revenue target through 2020 are achieved. The cash flow performance targets for each year are determinedconcurrently with the annual budget process and because each yearly target has not yet been set, no grant date for the options has beenestablished. As of December 31, 2016, the Company has determined that the achievement of the performance targets is not probable and,accordingly, no stock-based compensation expense has been recorded for these awards. To the extent that the awards become probable ofvesting prior to the grant date, the amount of compensation cost to be recognized will be based on the then fair value of the options. The fair valueof the options will be remeasured each period until a grant date has been established. Accordingly, stock-based compensation cost, if any, to berecognized will depend on the value of the stock options when all performance conditions have been set and whether the performance conditionsare probable of being achieved. Based on the Company’s stock price as of December 31, 2016, the cumulative unrecognized stock compensationcost relating to these awards is approximately $12 million. Stock-based compensation expenseStock-based compensation expense for stock option awards for the years ended December 31, 2016, 2015 and 2014 was as follows (inthousands): Year ended December 31, 2016 2015 2014 Cost of revenues $715 $466 $249 Sales and marketing 2,490 2,418 1,059 Research and development 809 588 229 General and administrative 2,512 2,025 480 $6,526 $5,497 $2,017 Note 13—Defined contribution planThe Company sponsors a defined contribution retirement plan (the “Plan”) that covers substantially all domestic employees. The Companymakes matching contributions of 100% of each $1 of the employee’s contribution up to the first 3% of the employee’s bi-weekly compensation and50% of each $1 of the employee’s contribution up to the next 2% of the employee’s bi-weekly compensation. Matching contributions to the Plantotaled $2.3 million, $1.7 million and $0.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.Note 14—Related party transactionsAs of December 31, 2015, the Company accrued for costs of third party legal services incurred on behalf of Silver Lake Sumeru, ICONIQCapital Group, L.P., another significant shareholder, and the Company’s Chief Marketing Officer relating to the Company’s initial public offering andother corporate related matters. Total amounts accrued at December 31, 2015 were $0.2 million, of which $0.1 million were expensed during 2015and $0.1 million were included in other assets as deferred offering costs. The Company had no material related party transactions for the yearended December 31, 2016. Note 15—Geographic informationRevenue by region is classified based on the country of the customer’s contracting office. The following table sets forth the Company’srevenue by geographic region (in thousands): Year ended December 31, 2016 2015 2014 United States $102,896 $71,832 $45,039 International 20,227 11,775 6,638 $123,123 $83,607 $51,677 95 The following table sets forth the Company’s property and equipment, net by geographic region (in thousands): December 31, 2016 2015 United States $10,602 $12,108 International 716 311 $11,318 $12,419 No countries outside the United States represented greater than 10% of total revenues. Note 16—Unaudited quarterly dataThe following table sets forth unaudited quarterly consolidated statements of operations data for each of the eight quarters in the periodended December 31, 2016. The Company has prepared the unaudited quarterly consolidated statements of operations data on a basis consistentwith the audited annual consolidated financial statements. In the opinion of management, the financial information in this table reflects alladjustments, consisting of normal and recurring adjustments, necessary for the fair statement of this data. Quarter Ended 2016 2015 December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31, (in thousands, except per share data) Revenues $35,340 $32,196 $29,026 $26,561 $24,474 $21,661 $19,425 $18,047 Gross profit 26,673 24,655 21,963 19,621 18,127 15,718 13,939 13,094 Net loss $(15,664) $(6,619) $(7,541) $(9,335) $(7,207) $(6,735) $(6,538) $(4,254)Net loss per share, basic and diluted $(0.33) $(0.16) $(0.19) $(0.23) $(0.18) $(0.17) $(0.16) $(0.11) 96 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresDisclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and otherprocedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reportsthat it files or submits under the Securities Exchange Act, as amended, or “the Exchange Act,” is recorded, processed, summarized, and reported,within the time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to the company’smanagement, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding requireddisclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness ofour disclosure controls and procedures as of December 31, 2016, the last day of the period covered by this Annual Report. Based on thisevaluation, our principal executive officer and principal financial officer have concluded that, as of December 31, 2016, our disclosure controls andprocedures were effective at the reasonable assurance level.Limitations on the Effectiveness of Controls and ProceduresIn designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, nomatter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Inaddition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and our management is requiredto apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls andprocedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any designwill succeed in achieving its stated goals under all potential future conditions.Management’s Annual Report on Internal Control over Financial ReportingThis Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reportingor an attestation report of our independent registered public accounting firm due to a transition period established by SEC rules and regulations fornewly public companies.Changes in Internal Control over Financial ReportingOther than the actions taken to improve our internal control over financial reporting as summarized below, there were no changes in ourinternal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) under the ExchangeAct that occurred during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.Remediation of Previously-Identified Material Weaknesses in Internal Control over Financial ReportingAs we previously disclosed, during 2015, we identified material weaknesses in our internal control over financial reporting. A materialweakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibilitythat a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Thematerial weaknesses identified related to an insufficient complement of resources with an appropriate level of accounting knowledge, experienceand training commensurate with our structure and financial reporting requirements. This lack of an effective control environment contributed tomaterial weaknesses from the lack of controls over the selection of certain accounting policies and procedures and segregation ofduties. Specifically, we did not have policies and controls designed to address the accounting for unusual or complex transactions, or the initialselection of, and the ongoing monitoring of changes in, accounting policies. Further, we did not maintain sufficiently designed segregation ofduties, including controls over journal entries such that there was a reasonable possibility that a material misstatement would not be prevented ordetected on a timely basis.97 In response to the identified material weaknesses, we took a number of actions to improve our internal control over financial reporting duringthe year ended December 31, 2016, including the following: 1.We hired additional personnel in our accounting and finance department with extensive knowledge in accounting and financialreporting; 2.We developed and implemented a financial reporting risk assessment and formalization of accounting policies and procedures; 3.We created additional internal reporting procedures, including those designed to enhance our review processes; 4.We increased segregation of duties, including controls over journal entries; 5.We organized and implemented a Disclosure Committee to review our transactions each quarter with key management andoperational personnel, which includes the review and discussion of unusual, complex and non-routine transactions; and 6.We prepared memoranda addressing accounting considerations of significant new transactions, which was reviewed by the principalaccounting officer.Management believes that these and other actions taken during the year ended December 31, 2016 have been fully implemented and areoperating effectively. As a result, we have concluded that our remediation efforts have been successful, and that the previously-identified materialweaknesses in our internal controls have been remediated. However, while these material weaknesses have been remediated, we continue to seekimprovements to enhance our control environment and to strengthen our internal controls to provide reasonable assurance that our financialstatements continue to be fairly stated in all material respects. Item 9B.Other InformationNone.PART III Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item will be included in our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to befiled with the Securities and Exchange Commission, or the SEC, within 120 days of the fiscal year ended December 31, 2016, and is incorporatedherein by reference. Item 11.Executive CompensationThe information required by this item will be included in our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2016, and is incorporated herein by reference.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item will be included in our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2016, and is incorporated herein by reference. Item 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item will be included in our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2016, and is incorporated herein by reference. 98 Item 14.Principal Accounting Fees and ServicesThe information required by this item will be included in our Definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2016, and is incorporated herein by reference.With the exception of the information incorporated in Items 10, 11, 12, 13, and 14 of this Annual Report on Form 10-K, our Definitive ProxyStatement for the 2017 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2016 is notdeemed “filed” as part of this Annual Report on Form 10-K.99 PART IV Item 15.Exhibits and Financial Statement SchedulesDocuments filed as part of this report are as follows: 1.Consolidated Financial Statements:Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II, Item 8 of thisAnnual Report on Form 10-K. 2.Financial Statement Schedules:Financial Statement Schedules have been omitted as information required is inapplicable or the information is presented in theconsolidated financial statements and the related notes. 3.Exhibits:The documents listed in the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K areincorporated by reference or are filed or furnished with this Annual Report on Form 10-K, in each case as indicted therein (numberedin accordance with Item 601 of Regulation S-K).Item 16.Form 10-K SummaryNot applicable.100 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this AnnualReport on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 10, 2017. BLACKLINE, INC. By:/s/ Therese TuckerName:Therese TuckerTitle:Chief Executive OfficerPOWER OF ATTORNEYEach person whose signature appears below constitutes and appoints Therese Tucker and Mark Partin, and each of them, as his or her trueand lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, inany and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, andother documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and eachof them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, asfully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents,or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalfof the Company and in the capacities and on the dates indicated: Signature Title Date /s/ Therese Tucker Chief Executive Officer and Director (Principal Executive Officer) March 10, 2017Therese Tucker /s/ Mark Partin Chief Financial Officer (Principal Financial Officer) March 10, 2017Mark Partin /s/ Patrick Villanova VP, Corporate Controller (Principal Accounting Officer) March 10, 2017Patrick Villanova /s/ Jason Babcoke Director March 10, 2017Jason Babcoke /s/ John Brennan Director March 10, 2017John Brennan /s/ William Griffith Director March 10, 2017William Griffith /s/ Hollie Haynes Director March 10, 2017Hollie Haynes /s/ Graham Smith Director March 10, 2017Graham Smith /s/ Mario Spanicciati Director March 10, 2017Mario Spanicciati /s/ Thomas Unterman Director March 10, 2017Thomas Unterman 101 Exhibit Index Exhibit Incorporated by ReferenceNumberDescriptionFormFileNo.ExhibitFilingDate2.1Agreement and Plan of Merger, by and among SLS Breeze Holdings, Inc., SLS Breeze Intermediate Holdings, Inc.,SLS Breeze Merger Sub, Inc. and BlackLine Systems, Inc., dated as of August 9, 2013S-1333-2138992.1September30, 2016 3.1Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of the Registrant, effectinga one-for-five reverse stock split.S-1/A333-2138993.2October17, 2016 3.2Amended and Restated Certificate of Incorporation of the Registrant.10-Q001-379243.2December12, 2016 3.3Amended and Restated Bylaws of the Registrant.10-Q001-379243.3December12, 2016 4.1Specimen Common Stock Certificate of the Company.S-1333-2138994.1September30, 2016 4.2Amended and Restated Stockholders’ Agreement, by and among the Registrant, Silver Lake Sumeru, Iconiq, ThereseTucker and Mario Spanicciati.10-Q001-379244.2December12, 2016 4.3Amended and Restated Registration Rights Agreement, by and among the Registrant, Silver Lake Sumeru, Iconiq,Therese Tucker and Mario Spanicciati.10-Q001-379244.3December12, 2016 4.4Warrant to Purchase Stock held by Special Value Continuation Partners, LP, dated as of September 25, 2013.S-1333-2138994.2September30, 2016 4.5Warrant to Purchase Stock held by Tennenbaum Opportunities Fund VI, LLC, dated as of September 25, 2013.S-1333-2138994.3September30, 2016 4.6Warrant to Purchase Stock held by Tennenbaum Senior Loan Fund II, LP, dated as of September 25, 2013.S-1333-2138994.4September30, 2016 4.7Warrant to Purchase Stock held by Tennenbaum Senior Loan SPV III, LLC, dated as of September 25, 2013.S-1333-2138994.5September30, 2016 4.8Warrant to Purchase Stock held by Tennenbaum Senior Loan Fund IV-B, LP, dated as of September 25, 2013.S-1333-2138994.6September30, 2016 4.9Subscription Agreement, by and between the Company and Iconiq, dated as of October 21, 2014.S-1333-2138994.7September30, 2016 10.1*Software Development Cooperation Agreement, by and between the Company and SAP AG, effective as of October 1,2013.S-1333-21389910.1September30, 2016 10.2+2014 Equity Incentive Plan and form of equity agreements thereunder.S-1333-21389910.6September30, 2016 10.3+Amendment No. 1 to the 2014 Equity Incentive Plan.S-1333-21389910.7September30, 2016 102 Exhibit Incorporated by ReferenceNumberDescriptionFormFileNo.ExhibitFilingDate10.4+Amendment No. 2 to the 2014 Equity Incentive Plan.S-1333-21389910.8September30, 2016 10.5+Amendment No. 3 to the 2014 Equity Incentive Plan.S-1333-21389910.9September30, 2016 10.6+2016 Equity Incentive Plan and the form of equity award agreements thereunder.S-1/A333-21389910.10October17, 2016 10.7+Employee Incentive Compensation Plan of the Company.S-1333-21389910.11September30, 2016 10.8+Form of 2015 Executive Officer Bonus Plan.S-1333-21389910.12September30, 2016 10.9+Form of Change of Control and Severance Policy.S-1333-21389910.13September30, 2016 10.10+Executive Employment Agreement, by and between the Registrant and Therese Tucker, effective as of January 1, 2016.S-1333-21389910.14September30, 2016 10.11+2015 Chief Executive Officer (CEO) Bonus Plan, by and between the Company and Therese Tucker, dated as of February5, 2016.S-1333-21389910.15September30, 2016 10.12+Employment Offer Letter, by and between the Company and Karole Morgan-Prager, dated as of May 4, 2015.S-1333-21389910.16September30, 2016 10.13+2015 Chief Legal Officer (CLO) Bonus Plan, by and between the Company and Karole Morgan-Prager, dated as ofDecember 29, 2015.S-1333-21389910.17September30, 2016 10.14+Confirmatory Offer Letter, by and between the Registrant and Karole Morgan-Prager, dated as of September 29, 2016.S-1333-21389910.18September30, 2016 10.15+Employment Offer Letter, by and between the Company and Mark Partin, dated as of December 25, 2014.S-1333-21389910.19September30, 2016 10.16+Confirmatory Offer Letter, by and between the Registrant and Mark Partin, dated as of September 29, 2016.S-1333-21389910.20September30, 2016 10.17+Confirmatory Offer Letter, by and between the Registrant and Chris Murphy, dated as of September 29, 2016.S-1333-21389910.21September30, 2016 10.18+Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.S-1333-21389910.22September30, 2016 10.19Restrictive Covenant Agreement, by and between the Company and Therese Tucker, dated as of August 8, 2013.S-1333-21389910.23September30, 2016 10.20Restrictive Covenant Agreement, by and between the Company and Mario Spanicciati, dated as of August 9, 2013.S-1333-21389910.24September30, 2016 103 Exhibit Incorporated by ReferenceNumberDescriptionFormFileNo.ExhibitFilingDate10.21*Office Lease, by and between the Company and Douglas Emmet 2008, LLC, dated November 22, 2010.S-1333-21389910.25September30, 2016 10.22*First Amendment to Office Lease, by and between the Company and Douglas Emmett 2008, LLC, dated August 14,2012.S-1333-21389910.26September30, 2016 10.23*Second Amendment to Office Lease, by and between the Company and Douglas Emmett 2008, LLC, dated December26, 2013.S-1333-21389910.27September30, 2016 10.24*Third Amendment to Office Lease, by and between the Company and Douglas Emmett 2008, LLC, dated June 24, 2014.S-1333-21389910.28September30, 2016 10.25Fourth Amendment to Office Lease, by and between the Company and Douglas Emmett 2008, LLC, dated January 29, 2015.S-1333-21389910.29September30, 2016 21.1List of subsidiaries of the Company.S-1333-21389921.1September30, 2016 23.1**Consent of Independent Registered Public Accounting Firm. 24.1**Power of Attorney (included in signature pages hereto). 31.1**Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuantto Section 302 of the Sarbanes-Oxley Act of 2002. 31.2**Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002. 32.1†Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS**XBRL Instance Document 101.SCH**XBRL Taxonomy Extension Schema Document 101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF**XBRL Taxonomy Extension Definition Linkbase Document 101.LAB**XBRL Taxonomy Extension Label Linkbase Document 101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document *Portions of this exhibit have been omitted pursuant to confidential treatment request. Omitted information has been separately filed with the Securitiesand Exchange Commission.**Filed herewith.+Indicates management contract or compensatory plan.†The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are deemed furnished and not filed with the Securitiesand Exchange Commission and are not to be incorporated by reference into any filing of BlackLine, Inc. under the Securities Act of 1933, as amended,or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of anygeneral incorporation language contained in such filing. 104Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-214309) of BlackLine, Inc. of our reportdated March 10, 2017 relating to the financial statements, which appears in this Annual Report on Form 10-K./s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 10, 2017Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TOEXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Therese Tucker, certify that:1. I have reviewed this Annual Report on Form 10-K of BlackLine, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date: March 10, 2017 /s/ Therese TuckerTherese TuckerChief Executive Officer(Principal Executive Officer) Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TOEXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I, Mark Partin, certify that:1. I have reviewed this Annual Report on Form 10-K of BlackLine, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered bythis report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant's ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controlover financial reporting.Date: March 10, 2017 /s/ Mark PartinMark PartinChief Financial Officer(Principal Financial Officer) Exhibit 32.1CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Therese Tucker, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that theAnnual Report on Form 10-K of BlackLine, Inc. for the fiscal year ended December 31, 2016 fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all materialrespects, the financial condition and results of operations of BlackLine, Inc. Date: March 10, 2017 By: /s/ Therese Tucker Name: Therese Tucker Title: Chief Executive Officer (Principal Executive Officer)I, Mark Partin, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that theAnnual Report on Form 10-K of BlackLine, Inc. for the fiscal year ended December 31, 2016 fully complies with the requirements of Section 13(a)or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all materialrespects, the financial condition and results of operations of BlackLine, Inc. Date: March 10, 2017 By: /s/ Mark Partin Name: Mark Partin Title: Chief Financial Officer (Principal Financial Officer) 

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