BlackLine
Annual Report 2018

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, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toCommission 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 for suchshorter 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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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, to thebest 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, a smaller reporting company, or an emerging growth company. Seethe definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.: Large accelerated filer ☒ Accelerated filer☐Non-accelerated filer ☐ Smaller reporting company☐ Emerging growth company☐ If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒The 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 on June 29,2018 as reported by the NASDAQ Global Select Market on such date was $1.565 billion. Shares of the registrant’s common stock held by each executive officer, director and holder of5% 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 a determination that certainpersons are affiliates of the registrant for any other purpose.At February 22, 2019, 54,956,059 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 Statement for theregistrant’s Annual Meeting of Stockholders to be held in 2019, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’sfiscal year ended December 31, 2018.  BLACKLINE, INC.2018 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS Page No.PART IItem 1.Business3Item 1A.Risk Factors9Item 1B.Unresolved Staff Comments31Item 2.Properties31Item 3.Legal Proceedings31Item 4.Mine Safety Disclosures31PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities32Item 6.Selected Financial Data33Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations36Item 7A.Quantitative and Qualitative Disclosures About Market Risk55Item 8.Financial Statements and Supplementary Data57Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure94Item 9A.Controls and Procedures94Item 9B.Other Information94PART IIIItem 10.Directors, Executive Officers and Corporate Governance95Item 11.Executive Compensation95Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters95Item 13.Certain Relationships and Related Transactions, and Director Independence95Item 14.Principal Accounting Fees and Services95PART IVItem 15.Exhibits, Financial Statement Schedules96Item 16.Form 10-K Summary99 Signatures1002 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 risk 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, customer service initiatives,expectations regarding contract size and increased focus on strategic products, expectations for hiring new talent and expanding our salesorganization; our ability to accurately forecast revenue and appropriately plan expenses and investments; the demand for and benefits from theuse of our current and future solutions; market acceptance of our solutions; and changes in the competitive environment in our industry and themarkets in which we operate. These statements are based upon our historical performance and our current plans, estimates and expectations andare not a representation that such plans, estimates, or expectations will be achieved. Forward-looking statements are based on informationavailable at the time those statements are made and/or management’s good faith beliefs and assumptions as of that time with respect to futureevents, and are subject to risks and uncertainty. If any of these risks or uncertainties materialize or if any assumptions prove incorrect, actualperformance or results may differ materially from those expressed in or suggested by the forward-looking statements. Readers are cautioned thatthese forward-looking statements are only predictions and are subject to risks, uncertainty, and assumptions that are difficult to predict, includingthose identified below, under “Part II-Other Information, Item 1A. Risk Factors” and elsewhere herein. Forward-looking statements should not beread as a guarantee of future performance or results, and you should not place undue reliance on such statements. Furthermore, we undertake noobligation 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, 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 results and 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 are a holding company and conduct our operations through our wholly-owned subsidiary, BlackLine Systems, Inc. (“BlackLineSystems”). BlackLine Systems funded its business with investments from our founder and cash flows from operations until September 3,2013. On September 3, 2013, we acquired BlackLine Systems, and Silver Lake Sumeru and Iconiq acquired a controlling interest in us, which werefer to as the “2013 Acquisition.” The 2013 Acquisition was accounted for as a business combination under accounting principles generallyaccepted in the United States (“GAAP”) and resulted in a change in accounting basis as of the date of the 2013 Acquisition.Our platform consists of nine core cloud-based products, including Transaction Matching, Account Reconciliations, Consolidation IntegrityManager, Daily Reconciliations, Journal Entry, Variance Analysis, Task Management, Compliance, and Insights. Customers typically purchasethese products in packages that we refer to as solutions, but they have the option to purchase these products individually. Current solutionsinclude Balance Sheet Integrity, Close Process Management, Accounting Process Automation, Finance Transformation, Intercompany Hub andSmart Close.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.The technology underpinning our platform includes a comprehensive base of accounting-specific business logic and rules engines, whichenable our customers to implement continuous accounting.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 our 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.4 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.SecurityOur platform and services incorporate industry best practices and meet internationally recognized standards with respect to informationsecurity management. We have implemented and maintain our certified Information Security Management System in accordance with the ISO/IEC27001 standard requirements. We meet a breadth of requirements for our security control environment, including information security policies,organization of information security, human resource security, access control, cryptography, physical and environmental security, operationssecurity, communications security, information security incident management, and information security aspects of business continuitymanagement. In our continued commitment to customer trust, transparency, and security in service, we provide customers independentlyvalidated testing and evaluation of our control environment through issued reports and certifications.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.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.5 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. At December 31, 2018, we hadover 222,600 individual users across more than 2,600 customers exclusive of on-premise software. We define a customer as an entity with anactive subscription agreement as of the measurement date. In situations where an organization has multiple subsidiaries or divisions, each entitythat is invoiced as a separate entity is treated as a separate customer. However, where an existing customer requests its invoice be divided forthe sole purpose of restructuring its internal billing arrangement without any incremental increase in revenue, such customer continues to betreated as a single customer.Products and ServicesOur platform consists of nine core cloud-based products, including Transaction Matching, Account Reconciliations, Consolidation IntegrityManager, Daily Reconciliations, Journal Entry, Variance Analysis, Task Management, Compliance, and Insights. Customers typically purchasethese products in packages that we refer to as solutions, but they have the option to purchase these products individually. Current solutionsinclude Balance Sheet Integrity, Close Process Management, Accounting Process Automation, Finance Transformation, Intercompany Hub, andSmart Close.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.6 •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.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 manages the entireintercompany transaction lifecycle within our platform and we believe it is the only widely available end-to-end intercompany solution. This solutionincludes 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.Compliance •Compliance is an integrated solution that facilitates compliance-related initiatives, consolidates project management, and providesvisibility over control self-assessments and testing.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.7 •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.Sales and MarketingWe sell our solutions through our direct sales force. Our direct sales force leverages our relationships with technology vendors such as SAPand NetSuite, professional services firms such as Deloitte, Ernst & Young, 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 inconnection with our relationship with SAP. We also utilize a reseller channel that includes software vendors throughout the world and offer trainingin 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.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.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 or8 license agreements with our employees, customers, partners, and others to protect our intellectual property rights. Though we rely in part uponthese legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees and the functionality andfrequent enhancements to our solutions are larger contributors 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.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,and service to each other and our customers.At December 31, 2018, we employed 850 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.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.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.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 consolidated financial statements and related notes, before making a decision to invest in ourcommon stock. The risks and uncertainties9 described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that we presently deem lesssignificant may also impair our business operations. If any of the events or circumstances described in the following risk factors actually occurs,our business, operating results, financial condition, cash flows, and prospects could be materially and adversely affected. In that event, themarket 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.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. Although our customers, users, and revenue have grown rapidly in the past, in recent periods our slower growth rates have reflected thesize and scale of our business, as well as our focus on our strategic products. We cannot be assured that we will achieve similar growth rates infuture periods as our customers, users, and revenue could decline or grow more slowly than we expect. Our business also depends on retainingexisting customers. If we do not retain customers, including due to the acquisition of our customers by other companies, our customers do notpurchase additional products or we do not add additional users to our platform, our revenues may grow more slowly than expected, may not growat all or may decline. Additionally, increasing incremental sales to our current customer base may require additional sales efforts that are targetedat senior management. 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. Renewal rates may decline orfluctuate as a result of a variety of factors, including satisfaction or dissatisfaction with our software or professional services, our pricing or pricingstructure, the pricing or capabilities of products or services offered by our competitors, the effects of economic conditions, or reductions in ourcustomers’ spending levels. As the markets for our existing solutions mature, or as current and future competitors introduce new products orservices that compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attractnew 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 priceincentives or reduce our prices. If our customers do not renew their agreements with us or renew on terms less favorable to us, our revenues maydecline.We have a history of losses and we may not be able to generate sufficient revenue to achieve or sustain profitability.We have incurred net losses attributable to Blackline, Inc. in recent periods, including $27.8 million, $33.1 million, and $26.3 million for theyears ended December 31, 2018, 2017, and 2016, respectively. We had an accumulated deficit of $130.6 million at December 31, 2018. We maynot be able to generate sufficient revenue to achieve and sustain profitability. We also expect our costs to increase in future periods as wecontinue to expend substantial financial and other 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;10 •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 or any growth in revenue and may not be sufficient tooffset the expense and may harm our profitability. If we fail to continue to grow our revenue, we may not achieve or sustain profitability.We continue to experience rapid growth and organizational change and if we fail to manage our growth effectively, we may be unable toexecute our business plan.We increased our number of full-time employees from 183 at December 31, 2013 to 850 at December 31, 2018 as we have experiencedgrowth in number of customers and expanded our operations. Our growth has placed, and may continue to place, a significant strain on ourmanagerial, administrative, operational, financial and other resources. We intend to further expand our headcount and operations both domesticallyand internationally, with no assurance that our business or revenue will continue to grow. Continuing to create a global organization and managinga geographically dispersed workforce will require substantial management effort, the allocation of valuable management resources and significantadditional investment in our infrastructure. We will be required to continually improve our operational, financial and management controls and ourreporting procedures and we may not be able to do so effectively, which could negatively affect our results of operations and overall business. Inaddition, we may be unable to manage our expenses effectively in the future, which may negatively impact our gross margins or operatingexpenses in any particular quarter. Moreover, if we fail to manage our anticipated growth and change in a manner that preserves the key aspectsof our corporate culture, the quality of our software solutions may suffer, which could negatively affect our brand and reputation and harm ourability 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; •long sales cycles and the timing of large contracts; •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; •the impact and timing of taxes or changes in tax law; •the timing and the amount of grants or vesting of equity awards to employees;11 •seasonality of our business; and •changes in customer buying patterns.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 existing enterprise resource planning (“ERP”) systems such asNetSuite, Oracle, SAP and Workday, and will require modifications and enhancements as these systems change over time. Any failure of oursolutions to operate effectively with future platforms and technologies could reduce the demand for our solutions or result in customerdissatisfaction. Furthermore, uncertainties about the timing and nature of new solutions or technologies, or modifications to existing solutions ortechnologies, could increase our research and development expenses. If we are not successful in developing modifications and enhancements toour solutions or if we fail to bring them to market in a timely fashion, our solutions may become less marketable, less competitive or obsolete, ourrevenue growth may be significantly impaired and our business could be adversely affected.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 Close Process Management solution. Assuch, the continued growth in market demand for this solution is critical to our continued success. In 2016, we introduced two new softwaresolutions, Intercompany Hub and Smart Close, and one new software product, Insights, but cannot be certain that they will generate significantrevenues. Accordingly, our business and financial results have been and 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, Ernst & Young, and KPMG, and business process outsourcers such as Cognizant,Genpact and IBM to supplement delivery and implementation of our applications. We believe these relationships enable us to effectively marketour solutions by offering a complementary suite of services. In particular, our solution is an SAP-endorsed business solution that integrates withSAP’s ERP solutions. In the fourth quarter of 2018, SAP became part of the reseller channel that we use in the ordinary course of business. SAPhas the ability to resell our accounting solutions, for which we receive a percentage of the revenues. Since October 1, 2018, we are no longerobligated to pay SAP a fee based on a percentage of revenues from our customers that use an SAP ERP solution. If we are unsuccessful inmaintaining our relationship with SAP, if our reseller arrangement with SAP is less successful than we anticipate, if our customers that use anSAP ERP solution do not renew their subscriptions directly with us and instead purchase our solution through the SAP reseller channel or if we areunsuccessful 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 working withour competitors or from offering competing services. For example, our agreement with SAP can be terminated by either party upon six months’notice and there is no assurance that our relationship with SAP will continue. If our solution is 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 our12 relationships, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results could suffer. Even if weare successful, we cannot assure you 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 or inadvertentaccess 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 of business,severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnityobligations, damages for contract breach or penalties for violation of applicable laws or regulations. We may also suffer breaches of our internalsystems. Security breaches of our platform or our internal systems could also result in significant costs for remediation that may include liabilityfor stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other businesspartners in an effort to maintain business relationships after a breach, and other liabilities.Additionally, many jurisdictions have enacted or may enact laws and regulations requiring companies to notify individuals of data securitybreaches involving certain types of personal data. These mandatory disclosures regarding a security breach could result in negative publicity tous, which may cause our customers to lose confidence in the effectiveness of our data security measures which could impact our operatingresults.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 Software as a Service(“SaaS”) provider or other technology companies, our clients and potential clients may lose trust in the security of our platform or in the SaaSbusiness model generally, which could adversely impact our ability to retain existing clients or attract new ones. Even in the absence of anysecurity breach, customer concerns about security, privacy, or data protection may deter them from using our platform for activities that involvepersonal or other sensitive information. Our errors and omissions insurance policies covering certain security and privacy damages and claimexpenses may not be sufficient to compensate for all potential liability. Although we maintain cyber liability insurance, we cannot be certain thatour coverage will be adequate for liabilities actually incurred or that 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 eventsincluding 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 in sophistication and volume and are difficult to detect and predict due to advances incomputer capabilities, new discoveries in the field of cryptography and new and sophisticated methods used by criminals including phishing, socialengineering or other illicit acts. There can be no assurances that our defensive measures will prevent cyber-attacks and any incidents coulddamage our brand and reputation and negatively impact our business.13 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.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, many of whomare new. In particular, our founder and Chief Executive Officer provides our strategic direction and has built and maintained what we believe is anattractive workplace culture. Any failure to preserve our culture could negatively affect our ability to recruit and retain personnel. There recentlyhave been, and from time to time in the future, there may be, changes in our executive management team resulting from the hiring or departure ofexecutives, which could disrupt our business. Key members of our current management and finance teams have only been working together for arelatively short period of time. If we are not successful in integrating these key employees into our organization, such failure could disrupt ourbusiness operations. We do not have employment agreements with our executive officers or other key personnel that require them to continue towork for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of ourexecutive officers or key employees, especially our founder and Chief Executive Officer, could have an adverse effect on our business.14 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 timeexperienced, 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.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.15 Our financial results may fluctuate due to our long and increasingly 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 size of the potential contract and the type of solution or product being purchased. The sales cycle for our global enterprisecustomers is generally longer than that of our mid-market customers. In addition, the length of the sales cycle tends to increase for largercontracts and for more complex, strategic products like Intercompany Hub. As we continue to focus on increasing our average contract size andselling more strategic products, we expect our sales cycle to lengthen and become less predictable. This could cause variability in our operatingresults for any particular period.A number of other factors that may 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.Failure to effectively organize or 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 organize and expand our sales andmarketing operations and activities. At December 31, 2018, our sales and marketing teams included 395 employees. As we’ve grown and scaledour operations, we have aligned our sales team to help streamline the customer experience. We rely on our direct sales force, which includes anaccount management team, to obtain new customers and to maximize the lifetime value of our customer relationships through retention and upsellefforts. Our success will depend, in part, on our ability to support new and existing customer growth and maintain customer satisfaction. If wecannot provide the tools and training to our teams to efficiently do their jobs and satisfy customer demands, we may not be able to achieveanticipated revenue growth as quickly as expected.In addition, we plan to continue to expand our direct sales force both domestically and internationally. We believe that there is significantcompetition for experienced sales professionals with the sales skills and technical knowledge that we require. Our ability to achieve significantrevenue growth in the future will depend, in part, on our success in recruiting, training, and retaining a sufficient number of experienced salesprofessionals. New hires require significant training and time before they achieve full productivity, particularly in new sales segments andterritories. Our recent hires and planned hires may not become as productive as quickly as we expect, and we may be unable to hire or retainsufficient numbers of qualified individuals in the future in the markets where we do business. Our business will be harmed if our sales expansionefforts do not generate a significant increase in revenue.16 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 may identify material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financialreporting in the future and may not be able to accurately or timely report our financial condition or results of operations, which mayadversely 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 (the “Sarbanes-Oxley Act”), requires that we evaluate and determine theeffectiveness of our internal control over financial reporting and provide a management report on internal control over financial reporting.The process of designing and implementing internal control over financial reporting required to comply with Section 404 of the Sarbanes-Oxley Act has been and will continue to be time consuming, costly and complicated. If, during the evaluation and testing process, we identify oneor more material weaknesses in our internal control over financial reporting, our management will be unable to assert that our internal control overfinancial reporting is effective. Even if our management concludes that our internal control over financial reporting is effective, our independentregistered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which ourinternal controls are documented, designed, implemented, or reviewed. If we are unable to assert that our internal control over financial reporting iseffective, or when required in the future, if our independent registered public accounting firm is unable to express an opinion as to the effectivenessof our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the marketprice of our common stock could be adversely affected, and we could become subject to stockholder lawsuits, litigation or investigations by thestock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial andmanagement resources, and cause investor perceptions to be adversely affected and potentially resulting in restatement of our financialstatements for prior periods and a decline in the market price of our stock.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, badacts or performance problems could harm our reputation, damage our customers’ businesses, and adversely affect our business and operatingresults. Our data centers are also vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, war, terrorist attacks, powerlosses, hardware failures, systems failures, telecommunications failures and similar events. If our data centers were compromised or unavailableor our users were unable to access our solutions for any reason, our business and operations would be materially and adversely affected.Our customers have experienced minor disruptions and outages in accessing our solutions in the past, and may in the future experiencedisruptions, 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. Our17 third-party data center providers may not be able to meet such performance requirements, especially to cover peak levels or spikes in traffic, andas a result, our customers may experience delays in accessing our solutions or encounter slower performance in our solutions, which couldsignificantly harm the operations of these facilities. Interruptions in our services might reduce our revenue, cause us to issue credits to customers,subject us to potential liability, and cause customers to terminate their subscriptions or harm our renewal 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 have and expect to in the future move or transfer our data andour customers’ data. Despite precautions taken during such processes and procedures, any unsuccessful data transfers may impair the delivery ofour service, and we may experience costs or downtime in connection with the transfer of data to other facilities which may lead to, among otherthings, customer dissatisfaction and non-renewals. The owners of our data center facilities have no obligation to renew their agreements with us oncommercially reasonable terms, or at all. If we are unable to renew these agreements on commercially reasonable terms, we may be required totransfer to new data center facilities, and we may incur significant costs and possible service interruption in connection with doing so.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 growing network of resellers and to add new resellers, in particular to help grow our mid-market business globally. Our agreements with our existing resellers are non-exclusive, meaning resellers may offer customers the products ofseveral different companies, including products that compete with ours. They may also cease marketing our solutions with limited or no notice andwith little or no penalty. We expect that any additional resellers we identify and develop will be similarly non-exclusive and not bound by anyrequirement to continue to market our solutions. If we fail to identify additional resellers in a timely and cost-effective manner, or at all, or areunable to assist our current and future resellers in independently selling our solutions, our business, results of operations, and financial conditioncould be adversely affected. If resellers do not effectively market and sell our solutions, or fail to meet the needs of our customers, our reputationand 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.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, Hong Kong, Ireland, Malaysia,Netherlands, Poland, Romania, Singapore, and the United Kingdom, and we intend to build out our international operations. As part of our ongoinginternational expansion strategy, in August 2016, we acquired Runbook, a Netherlands-based provider of financial close automation softwaresolutions to SAP customers. Additionally, in September18 2018, we entered into an agreement with Japanese Cloud Computing and M30 LLC to engage in a joint venture that is focused on the sale of ourproducts in Japan (the “Japanese Joint Venture”). We derived approximately 21%, 19%, and 17% of our revenues from sales outside the UnitedStates in the years ended December 31, 2018, 2017, and 2016, respectively. Any international expansion efforts that we may undertake, includingour Runbook Acquisition and our Japanese Joint Venture, may not be successful. In addition, conducting international operations in new marketssubjects 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.We may be unable to integrate acquired businesses and technologies successfully, or achieve the expected benefits of thesetransactions and other strategic transactions.We regularly evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies,services, products, and other assets. For example, in 2016, we completed the Runbook Acquisition and in 2018, we entered into our JapaneseJoint Venture. We also may enter into relationships with other businesses to expand our products and services, which could involve preferred orexclusive licenses, additional channels of distributions or discount pricing.Any future acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, wemay encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired companies,particularly if the key personnel of the acquired company choose not to work for us, their software is not easily adapted to work with our platform,or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. In addition,Runbook offers an on-premise solution to its customers. If we are unable to migrate those customers to our cloud solution or if we are unable tointegrate Runbook’s on-premise software with our platform, our business may be adversely affected. Acquisitions may also disrupt our business,divert our resources, and require significant management attention that would otherwise be available for development of our existing business.Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknownrisks 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;19 •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.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.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.Lawsuits or other claims by third parties for alleged infringement of their proprietary rights could cause us to incur significant expensesor 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 our20 business operations. Such disputes could also disrupt our solutions, adversely impacting our customer satisfaction and ability to attractcustomers.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.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 (the “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 have an EU-U.S. Privacy Shield certification in place that webelieve allows for the lawful transfer of personal data from the EU to the United States, however, the EU-U.S. Privacy Shield, and any othermechanisms that we use or may use in the future in an effort to legitimize cross-border data transfers may be challenged or evolve to include newlegal requirements that could have an impact on data transfers. It is unclear at this time whether the EU-U.S. Privacy Shield will continue to serveas an appropriate means for us to transfer EU personal data from the EU to the United States. Our means for transferring personal data from theEU may not be adopted by all of our customers and may be subject to legal challenge by data protection authorities, and we may experiencereluctance or refusal by European customers to use our solutions due to potential risk exposure. We and our customers face a risk of enforcementactions taken by EU data protection authorities 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 adopted a General DataProtection Regulation (“GDPR”), which became effective on May 25, 2018 and superseded current EU data protection legislation. GDPR imposesmore stringent EU data protection requirements for processors and controllers of personal data. As GDPR is a regulation rather than a directive, itapplies throughout all EU member states, but permits member states to enact supplemental requirements in certain areas if they so choose.Noncompliance with GDPR can trigger penalties up to €20 million or 4% of global annual revenues, whichever is higher. Additionally, Californiarecently enacted legislation, the California Consumer Privacy Act, or CCPA, that will, among other things, require covered companies to providenew disclosures to California consumers, and afford such consumers new abilities to opt out of certain sales of personal information, when it goesinto effect on January 1, 2020.21 Legislators have stated that they intend to propose amendments to the CCPA before it goes into effect, and it remains unclear what, if any,modifications will be made to this legislation or how it will be interpreted. The effects of the CCPA are significant, however, and may require us tomodify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. We cannot yet determinethe impact these laws and regulations or any future laws, regulations and standards may have on our business. Such laws, regulations andstandards are often subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reducedemand for our service, increase our costs, impair our ability to grow our business, or restrict our ability to store and process data or, in somecases, 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 orforeign laws and regulations, industry standards, contractual obligations and other legal obligations, or any changes in their interpretation, we mayfind it necessary or desirable to fundamentally change our business activities and practices or to expend significant resources to modify oursoftware or platform and otherwise adapt to these changes. We may be unable to make such changes and modifications in a commerciallyreasonable 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, the United Kingdomgovernment initiated a process to leave the EU in March 2017 and began negotiations to leave the EU in June 2017 (often referred to as “Brexit”),which is expected to be completed within the next two years. The Brexit has created uncertainty with regard to the regulation of data protection inthe United Kingdom. The United Kingdom recently implemented a Data Protection Bill that substantially implements GDPR, which becameeffective in May 2018. It is unclear, however, how U.K. data protection laws or regulations will develop in the medium to longer term, and how datatransfers to and from the U.K. 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 18, 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.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 upon 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 translational22 remeasurements that are reflected in our results of operations. As a result of such foreign currency exchange rate fluctuations, it could be moredifficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange ratescause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could beadversely 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 EU, but it is uncertain over what time period this will occur. A significantly weaker British poundcompared 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 to U.S. embargoed or sanctioned countries, governments and persons. Even though we take precautions to prevent oursolutions from being provided to U.S. sanctions targets, our solutions could be sold by resellers or could be used by persons in sanctionedcountries 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 or import privileges, fines, and, in extreme cases, the incarceration of responsible employees or managers. Inaddition, if our resellers fail to obtain appropriate import, export or re-export licenses or authorizations, we may also be adversely affected throughreputational 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 and import regulations may create delays in the introduction and sale of oursolutions in international markets, prevent our customers with international operations from accessing our solutions or, in some cases, preventingthe export or import of our solutions to some countries, governments or persons altogether. Any change in export or import regulations, economicsanctions 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.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 our23 financial statements. For example, in May 2014, the FASB issued Accounting Standards Update, or ASU, No. 2014-09, Revenue from Contractswith Customers (“ASC 606”), as amended, superseded nearly all existing revenue recognition guidance. The effective date of the new revenuestandard was January 1, 2018. The new standard permitted adoption either by using (i) a full retrospective approach for all periods presented in theperiod of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the dateof initial application and providing certain additional disclosures. We adopted the new revenue guidance in the first quarter of 2018 using the fullretrospective method to restate each prior reporting period presented. We assessed the impact of the new revenue guidance on our arrangementsand the new standard had a material impact on our consolidated financial statements. The new guidance impacted the amount and timing ofincremental costs of obtaining a contract, such as sales commissions. We generally do not pay sales commissions upon contract renewal.Accordingly, under the new revenue guidance, the sales commissions are recognized over an estimated period of benefit rather than over the non-cancelable term under current guidance. The new guidance also impacted our on-premise solutions, as we are required to recognize as revenue asignificant portion of the contract consideration upon delivery of the software compared to the prior practice of recognizing the contractconsideration ratably over time for certain arrangements. The new guidance requires incremental disclosures of our revenue arrangements.Adoption of this standard required changes to our business processes, systems and controls to support the new revenue recognition guidance.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.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.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 software24 applications and services generally and for accounting and finance systems in particular. Weak economic conditions affect the rate of accountingand finance and information technology spending and could adversely affect our customers’ or potential customers’ ability or willingness topurchase our cloud platform, delay purchasing decisions, reduce the value or duration of their subscription contracts, or affect attrition rates, all ofwhich could adversely affect our operating results. If economic conditions deteriorate, our customers and prospective customers may elect todecrease their accounting and finance and information technology budgets, which would limit our ability to grow our business and negatively affectour operating results.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,and business 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.The adoption of any laws or regulations adversely affecting the growth, popularity or use of the Internet, including laws impacting Internetneutrality, could decrease the demand for our products and increase our operating costs. The current legislative and regulatory landscaperegarding the regulation of the Internet and, in particular, Internet neutrality, in the United States is subject to uncertainty. The FederalCommunications Commission had previously passed Open Internet rules in February 2015, which generally provided for Internet neutrality withrespect to fixed and mobile broadband Internet service. On December 14, 2017, the Federal Communications Commission voted to repeal OpenInternet rules generally providing for Internet neutrality with respect to fixed and mobile broadband Internet service regulations and return to a “light-touch” regulatory framework known as the “Restoring Internet Freedom Order.” The FCC’s new rules, which took effect on June 11, 2018, repealedthe neutrality obligations imposed by the 2015 rules and granted providers of broadband internet access services greater freedom to makechanges to their services, including, potentially, changes that may discriminate against or otherwise harm our business. However, a number ofparties have appealed this order, which is currently being reviewed by the D.C. Circuit Court of Appeals; thus, the future impact of the FCC’srepeal and any challenge thereto remains uncertain. Additional changes in the legislative and regulatory landscape regarding Internet neutrality, orotherwise regarding the regulation of the Internet, could also harm our business.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.25 Seasonality may be reflected to a much lesser extent, and sometimes may not be immediately apparent, in our revenue, due to the fact that werecognize subscription revenue over the term of our agreements. We may also increase expenses in a period in anticipation of future revenues.Changes in the number of customers and users in different periods will cause fluctuations in our financial metrics and, to a lesser extent,revenues. Those changes and fluctuations in our expenses will affect our results on a quarterly basis, and will make forecasting our futureoperating 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.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.At December 31, 2018, we had federal and state net operating loss carryforwards (“NOLs”), of $172.7 million and $94.1 million, respectively.In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) a corporation that undergoes an “ownership change”is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Our existing NOLs may be subject to limitations arisingfrom previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of theCode. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 ofthe Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a riskthat due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire orotherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of ourNOLs, whether or not we attain profitability. The Tax Act includes changes to the U.S. federal corporate income tax rate, and our NOLs and otherdeferred tax assets have been revalued at the newly enacted rate. The revaluation did not have a material impact on our consolidated balancesheet and consolidated statement of operations because we currently maintain a full valuation allowance on our U.S. deferred tax assets.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 issue26 could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the futurecould involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it moredifficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able toobtain additional financing on terms favorable to us, or at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us,when we require it, our ability to continue to support our business growth and to respond to business challenges 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.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. At December 31, 2018, we had goodwill and intangible assetswith a net book value of $212.9 million related to the 2013 Acquisition and the Runbook Acquisition. An adverse change in market conditions,particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fairvalue that could result in an impairment charge to our goodwill or intangible assets. Any such charges may have a material negative impact on ouroperating 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;27 •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.Certain of our Principal Stockholders hold a significant percentage of our common stock, and their interests may differ from those ofother stockholders.At December 31, 2018, our Principal Stockholders beneficially owned, in the aggregate, approximately 31% 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 are 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 our nominating and corporate governance committee.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.We are no longer a “controlled company” within the meaning of the corporate governance rules of the NASDAQ Stock Market because ourPrincipal Stockholders no longer control more than a majority of our outstanding stock. Although we previously qualified as a “controlled company,”we elected not to take advantage of the “controlled company” exemption and are in full compliance with all corporate governance requirementsunder the NASDAQ Stock Market rules.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 under theStockholders’ Agreement in a manner that would prohibit them from investing in competing businesses or doing business with our partners orcustomers. Accordingly, these directors will28 have the rights to pursue business opportunities that may be of interest to the company and which they would otherwise need to provide to thecompany.Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.The market price of our common stock could decline as a result of substantial sales of our common stock, particularly sales by ourdirectors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or theperception in the market that holders of a large number of shares intend to sell their shares.In November 2017, we filed a shelf registration statement on Form S-3 that registered the sale of 33,738,329 shares of our common stockthen held by our Principal Stockholders, from time to time, in secondary offerings. In December 2017, March 2018, and May 2018, certain of ourPrincipal Stockholders sold an aggregate of 4,500,000 shares, 8,000,000 shares, and 3,500,000 shares, respectively, under the registrationstatement and the remaining 17,738,329 shares registered under the registration statement may be offered and sold without restriction under theSecurities Act. Such shares may be offered from time to time in the open market, in block trades, in underwritten offerings or in any othertransaction described in the related prospectus. All shares covered by the registration statement are immediately tradeable unless transferred toan affiliate of the Company.Sales of our common stock by our current stockholders may make it more difficult for us to sell equity securities in the future at a time andat a price that we deem appropriate. These sales also could cause the market price of our common stock to decline and make it more difficult foryou to sell shares of our common stock.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 (the“DGCL”) 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 is prohibited; •any amendment, alteration, rescission or repeal of our amended and restated bylaws or of certain provisions of our amended andrestated certificate of incorporation by our stockholders requires the affirmative vote of the holders of at least 75% of the voting powerof our stock entitled 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.29 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 (the “ExchangeAct”) the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of theexchanges and other markets upon which our common stock is listed, and other applicable securities rules and regulations. Compliance with theserules and regulations increases our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, andincrease demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reportswith respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosurecontrols and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls andprocedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required.We are required to disclose changes made in our internal control and procedures on a quarterly basis and are required to furnish a report bymanagement on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. Additionally, ourindependent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting pursuant toSection 404. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’sattention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have hiredadditional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outsideconsultants, 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,and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practicemay evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regardingcompliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantialresources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrativeexpenses and a diversion of management’s time and attention from business operations to compliance activities. If our efforts to comply with newlaws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their applicationand practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.As a result of increased disclosure of information in the filings required in a public company, our business and financial condition hasbecome more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claimsare successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved inour favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adverselyaffect our 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 foreseeablefuture. Any return to stockholders will therefore be limited to the increase, if any, of our stock price, which may never occur.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.30 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 CommentsNone.Item 2.PropertiesOur principal executive offices are located in Los Angeles, California where we occupy approximately 89,000 square feet of space under alease that expires in January 2024. We also occupy additional leased offices located in New York, New York; London, the United Kingdom;Melbourne, Australia; Sydney, Australia; Paris, France; Frankfurt, Germany; Hong Kong, China; Dublin, Ireland; Kuala Lumpur, Malaysia;Vancouver, Canada; Ede, Netherlands; Warsaw, Poland, Bucharest, Romania, and Singapore. We believe that our properties are generally suitableto meet our needs for the foreseeable future. In addition, to the extent we require additional space in the future, we believe that it would be readilyavailable on commercially 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 Annual Report on Form 10-K for the year ended December 31, 2018, we are not a party to any litigation the outcome of which, if determinedadversely to us, would individually or in the aggregate be reasonably 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.31 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.Holders of RecordAt February 22, 2019, there were 24 shareholders of record. The number of record holders does not include beneficial holders who hold theirshares in “street name,” meaning that the shares are held for their accounts by a broker or other nominee. Accordingly, we believe that the totalnumber 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.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,for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities underthat Section, 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 our commonstock commenced trading on the NASDAQ Global Select Market) through December 31, 2018 with (ii) the cumulative total return of the S&P 500Index and the NASDAQ Computer & Data Processing Index over the same period, assuming the investment of $100 in our common stock and inboth of the other indices on October 28, 2016 and the reinvestment of dividends. The graph uses the closing market price on October 28, 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 on our commonstock and do not anticipate declaring or paying a cash dividend in the foreseeable future.32 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 2019 Annual Meeting of Stockholders to be filed withthe SEC within 120 days of the fiscal year ended December 31, 2018, and is incorporated herein by reference. Unregistered Sales of Equity SecuritiesNone.Use of ProceedsNone.Issuer Purchases of Equity SecuritiesNone. Item 6.Selected Financial DataThe consolidated statements of operations data for the years ended December 31, 2018, 2017, and 2016 and the consolidated balancesheet data at December 31, 2018 and 2017 are derived from, and qualified by reference to, our audited financial statements included elsewhere inthis Annual Report on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2015 and 2014 and theconsolidated balance sheet data at December 31, 2016, 2015, and 2014 are derived from our audited financial statements not included in thisAnnual Report on Form 10-K.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.33 Consolidated Statements of Operations Data (in thousands, except per share data): Year Ended December 31, 2018(1) 2017(1) 2016(1)(2) 2015(1) 2014(1) *As Adjusted *As Adjusted (in thousands, except per share data) Revenues Subscription and support $217,406 $167,081 $122,441 $80,080 $49,029 Professional services 10,382 8,522 5,593 3,527 2,648 Total revenues 227,788 175,603 128,034 83,607 51,677 Cost of revenues Subscription and support 41,428 33,530 25,900 19,773 14,380 Professional services 9,446 7,855 4,311 2,956 2,218 Total cost of revenues(3)(4) 50,874 41,385 30,211 22,729 16,598 Gross profit 176,914 134,218 97,823 60,878 35,079 Operating expenses Sales and marketing(3)(4) 128,808 103,967 71,970 56,546 31,837 Research and development(3) 30,754 23,874 21,125 18,216 9,705 General and administrative(3)(4)(5) 47,188 36,786 27,911 20,928 11,716 Total operating expenses 206,750 164,627 121,006 95,690 53,258 Loss from operations (29,836) (30,409) (23,183) (34,812) (18,179)Other income (expense) Interest income 2,136 1,069 4 — — Interest expense (4) (13) (5,936) (3,215) (3,047)Change in fair value of the common stock warrant liability — (3,490) (5,880) (420) (3,700)Other income (expense), net 2,132 (2,434) (11,812) (3,635) (6,747)Loss before income taxes (27,704) (32,843) (34,995) (38,447) (24,926)Provision for (benefit from) income taxes 162 208 (8,658) (13,713) (8,174)Net loss (27,866) (33,051) (26,337) (24,734) (16,752)Net loss attributable to redeemable non-controlling interest (62) — — — — Net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337) $(24,734) $(16,752)Basic net loss per share attributable to BlackLine, Inc. $(0.52) $(0.63) $(0.62) $(0.61) $(0.42)Shares used to calculate basic net loss per share 53,912 52,161 42,497 40,579 40,089 Diluted net loss per share attributable to BlackLine, Inc. $(0.52) $(0.63) $(0.62) $(0.61) $(0.42)Shares used to calculate diluted net loss per share 53,912 52,161 42,497 40,579 40,089 (1)On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers using the full retrospective method applied to allcontracts. Results for the years ended December 31, 2018, 2017, and 2016 are presented under ASC 606, while prior periods have not beenadjusted for ASC 606.(2)On August 31, 2016, we completed the Runbook Acquisition. The Runbook Acquisition was accounted for as a business combination. Theresults of Runbook are included in our consolidated results of operations for the period subsequent to the acquisition date. See Note 8 ofnotes to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.(3)The following table presents stock-based compensation included in each respective expense category (in thousands): Year Ended December 31, 2018 2017 2016 2015 2014 Cost of revenues $3,265 $1,149 $715 $466 $249 Sales and marketing 8,674 10,811 2,490 2,418 1,059 Research and development 2,570 767 809 588 229 General and administrative 6,386 3,317 2,512 2,025 480 $20,895 $16,044 $6,526 $5,497 $2,01734 (4)The following table presents the amortization of intangible assets included in each respective expense category (in thousands): Year Ended December 31, 2018 2017 2016 2015 2014 Cost of revenues $6,863 $6,847 $6,368 $6,139 $6,139 Sales and marketing 3,887 3,872 3,605 3,487 3,487 General and administrative 2,273 2,591 2,532 2,466 2,466 $13,023 $13,310 $12,505 $12,092 $12,092(5)General and administrative expenses include increases (decreases) in fair value of contingent consideration of $0.5 million, $0.6 million,$0.4 million, $41,000, and $(0.8) million, for the years ended December 31, 2018, 2017, 2016, 2015, and 2014, respectively.Consolidated Balance Sheet Data (in thousands): December 31, 2018(1) 2017(1) 2016(1) 2015(1) 2014(1) *As Adjusted *As Adjusted Cash and cash equivalents $46,181 $31,104 $22,118 $15,205 $25,707 Marketable securities 86,396 81,476 83,130 — — Total assets 493,868 460,813 434,273 286,750 285,550 Deferred revenue 129,074 104,184 77,660 52,750 34,574 Deferred revenue, noncurrent 277 468 489 — — Capital lease obligations, net of current portion — — — 558 — Long-term debt — — — 28,267 25,673 Redeemable non-controlling interest 4,387 — — — — Total stockholders' equity 321,569 317,305 309,077 166,168 183,947(1)On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers using the full retrospective method applied to allcontracts. Balance sheet data for December 31, 2018, 2017, and 2016 is presented under ASC 606, while balance sheet data for December31, 2015 and 2014 has not been adjusted for ASC 606. 35 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.At December 31, 2018, we had over 222,600 individual users across more than 2,600 customers exclusive of on-premise software.Additionally, we continue to build strategic relationships with technology vendors, professional services firms, business process outsourcers, andresellers.We are a holding company and conduct our operations through our wholly-owned subsidiary, BlackLine Systems, Inc. (“BlackLineSystems”). BlackLine Systems funded its business with investments from our founder and cash flows from operations until September 3,2013. On September 3, 2013, we acquired BlackLine Systems, and Silver Lake Sumeru and Iconiq acquired a controlling interest in us, which werefer to as the “2013 Acquisition.” The 2013 Acquisition was accounted for as a business combination under GAAP and resulted in a change inaccounting basis as of the date of the 2013 Acquisition.Our platform consists of nine core cloud-based products, including Transaction Matching, Account Reconciliations, Consolidation IntegrityManager, Daily Reconciliations, Journal Entry, Variance Analysis, Task Management, Compliance, and Insights. Customers typically purchasethese products in packages that we refer to as solutions, but they have the option to purchase these products individually. Current solutionsinclude Balance Sheet Integrity, Close Process Management, Accounting Process Automation, Finance Transformation, Intercompany Hub andSmart Close.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, 2018. 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 contract. The first year of subscription fees are typically payable within 30 days after execution of a contract,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 solutions primarily through our direct sales force, which leverages our relationships with technology vendors, professionalservices firms and business process outsourcers. In particular, our solution is an SAP endorsed business solution that integrates with SAP’s ERPsolutions. In the fourth quarter of 2018, SAP became part of the reseller channel that we use in the ordinary course of business. SAP has theability to resell our accounting solutions, for which we receive a percentage of the revenues. Since October 1, 2018, we are no longer obligated topay SAP a fee based on a percentage of revenues from our new customers that use an SAP ERP solution.36 Over the past few years, our dollar-based net revenue retention rate has been decreasing. This could be caused by increasing churn orattrition, higher initial deal sizes, customer mix, a slower adoption rate of new products by existing customers, or a slower pace of user expansionas our customer base matures. Our ability to maximize the lifetime value of our customer relationships will depend, in part, on the willingness ofthe customer to purchase additional user licenses and products from us. We rely on our sales and customer success teams to support and growour existing customers by maintaining high customer satisfaction and educating the customer on the value all our products provide.The length of our sales cycle depends on the size of the potential customer and contract, as well as the type of solution or product beingpurchased. The sales cycle for our global enterprise customers is generally longer than that of our mid-market customers. In addition, the lengthof the sales cycle tends to increase for larger contracts and for more complex, strategic products like Intercompany Hub. As we continue to focuson increasing our average contract size and selling more strategic products, we expect our sales cycle to lengthen and become less predictable,which could cause variability in our results for any particular period.We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers,in the fourth quarter of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the softwareindustry. As the terms of most of our customer agreements are measured in full year increments, agreements initially entered into the fourthquarter or last month of any quarter will generally come up for renewal at that same time in subsequent years. This seasonality is reflected in ourrevenues, though the impact to overall annual or quarterly revenues is minimal due to the fact that we recognize subscription revenue ratably overthe term of the customer contract.For the years ended December 31, 2018, 2017, and 2016, we had revenues totaling $227.8 million, $175.6 million, and $128.0 million,respectively, and we incurred net losses attributable to Blackline, Inc. of $27.8 million, $33.1 million, and $26.3 million, respectively.We adopted ASC 606 in the first quarter of 2018 using the full retrospective method, which resulted in the restatement of our consolidatedfinancial statements for the years ended December 31, 2017 and 2016 presented in this Annual Report on Form 10-K. The adoption of this newstandard impacted how we accounted for revenue recognition and contract costs. See “Significant Accounting Policies - Recent accountingpronouncements” in Note 2 of the accompanying notes to our consolidated financial statements for additional information.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 was paid in cash on the acquisition date. The purchaseconsideration is subject to a final working capital adjustment, which has not yet been finalized. Any adjustment will be recorded in the consolidatedstatement of operations in the period of settlement. 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.37 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 on-premise software. Year Ended December 31, 2018 2017 2016 Dollar-based net revenue retention rate 108% 112% 116%Number of customers (at end of period) 2,631 2,208 1,758 Number of users (at end of period) 222,619 196,612 166,903Dollar-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. Ourability to maximize the lifetime value of our customer relationships will depend, in part, on the willingness of the customer to purchase additionaluser licenses and products from us. Over the past few years, our dollar-based net revenue retention rate has been decreasing. This could becaused by increasing churn or attrition, higher initial deal sizes, customer mix, a slower adoption rate of new products by existing customers, lowerprice increases than in prior periods, or a slower pace of user expansion as our customer base matures. We rely on our sales and customersuccess teams to support and grow our existing customers by maintaining high customer satisfaction and educating the customer on the value allour products provide.Number of customers. We believe that our ability to expand our customer base is an indicator of our market penetration and the growth ofour 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, 2018, 2017, and2016, 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. We are also beginning to sell an increasing number of non-userbased strategic products.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 solutions subscribed for by thecustomer and the number of users having access to the solutions. 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 ratablyover the term of the contract. At any time during the subscription period, customers may increase their number of users and add products.Additional fees are payable for the remainder of the initial or renewed contract term. Customers may only reduce their number of users orsubscription 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, 2018.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 longer38 develop any new applications or functionality for our legacy on-premise software, but we continue to provide post-contract support to one customerthat had not migrated to our SaaS solution at December 31, 2018.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. We also provideconsulting and training services to help customers optimize the use of our products. These services are considered distinct performanceobligations. Professional services do not result in significant customization of the subscription service. We apply the practical expedient torecognize professional services revenue when we have the right to invoice based on time and materials incurred. Professional services revenuescomprised approximately 5% of our revenues for the year ended December 31, 2018.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.”We adopted ASC 606 in the first quarter of 2018 using the full retrospective method, which resulted in the restatement of our consolidatedfinancial statements for the years ended December 31, 2017 and 2016 presented in this Annual Report on Form 10-K. The adoption of this newstandard impacted how we accounted for revenue recognition and contract costs. See “Significant Accounting Policies - Recent accountingpronouncements” in Note 2 of the accompanying notes to our consolidated financial statements for additional information.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. Sales and marketing expenses also includeamortization of customer relationship intangible assets. We defer sales and partner commissions and amortize them over an estimated period ofbenefit of five years. We expect the annual trend in sales and marketing expenses to continue to increase as we expand our direct sales teamsand increase sales through our strategic relationships and resellers.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.39 Interest IncomeInterest income primarily consists of earnings on our cash and cash equivalents and our marketable securities.Interest ExpenseInterest expense consists primarily of interest expense from borrowings under our credit facility and amortization of debt discounts andissuance costs. We repaid in full all outstanding debt and terminated our credit facility in November 2016. In connection with the termination of ourcredit 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 were measured at fair value each period,with changes in fair value recorded in our consolidated statements of operations. The stock warrants were exercised in May 2017 and, accordingly,there will be no further changes in the fair value recorded in our results of operations.Provision for (Benefit from) Income TaxesWe are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. We use the liability method ofaccounting for income taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financialstatement and tax bases of assets and liabilities, using tax rates expected to be in effect during the years in which the bases differences areexpected to reverse.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, 2018, 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 were not material for the years ended December 31, 2018, 2017, and 2016.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. Years Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted (in thousands, except percentages) GAAP revenues $227,788 $175,603 $128,034 GAAP gross profit $176,914 $134,218 $97,823 GAAP gross margin 77.7% 76.4% 76.4%GAAP net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337)* See Note 3 of notes to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a summary ofadjustments. 40 Years Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted (in thousands, except percentages) Non-GAAP revenues $227,788 $175,603 $128,750 Non-GAAP gross profit $187,042 $142,214 $105,622 Non-GAAP gross margin 82.1% 81.0% 82.0%Non-GAAP net income (loss) attributable to BlackLine, Inc. $6,425 $1,537 $(5,691)* See Note 3 of notes to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a summary ofadjustments. Non-GAAP Revenues. Non-GAAP revenues are defined as GAAP revenues adjusted for the impact of purchase accounting resulting fromthe Runbook Acquisition. Upon the completion of the Runbook Acquisition, deferred revenue was recorded at fair value, resulting in a reductionfrom its then carrying value. The reduction associated with the Runbook Acquisition resulted in reduced revenue for the year ended December 31,2016. We believe that presenting non-GAAP revenues is useful to investors as it eliminates the impact of the purchase accounting adjustment torevenues 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 Runbook Acquisition, the amortization of acquired developed technologyresulting from the 2013 Acquisition and the Runbook Acquisition, and stock-based compensation. Non-GAAP gross margin is defined as non-GAAP gross profit divided by non-GAAP revenues. We believe that presenting non-GAAP gross margin is useful to investors as it eliminates theimpact of certain non-cash expenses and allows a direct comparison of gross margin between periods.Non-GAAP Net Income (Loss). Non-GAAP net income (loss) is defined as GAAP net loss adjusted for the impact of the provision for(benefit from) income taxes that we were able to recognize as a result of the deferred tax liabilities associated with the intangible assetsestablished upon the 2013 Acquisition and the Runbook Acquisition, the impact of purchase accounting to revenues resulting from the RunbookAcquisition, amortization of acquired intangible assets resulting from the 2013 Acquisition and the Runbook Acquisition, stock-basedcompensation, accretion of debt discount pertaining to our credit facility, accretion 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,acquisition-related costs for the Runbook Acquisition, cost incurred in relation to our secondary offering and cost incurred relating to our shelfoffering. We believe that presenting non-GAAP net loss is useful to investors as it eliminates the impact of items that have been impacted by the2013 Acquisition and the Runbook Acquisition, purchase accounting and other related costs in order to allow a direct comparison of net lossbetween current and future periods.41 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 income (loss): Years Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted (in thousands, except percentages) Non-GAAP Revenues: Revenues $227,788 $175,603 $128,034 Purchase accounting adjustment to revenues — — 716 Total non-GAAP revenues $227,788 $175,603 $128,750 Non-GAAP Gross Profit: Gross profit $176,914 $134,218 $97,823 Purchase accounting adjustment to revenues — — 716 Amortization of developed technology 6,863 6,847 6,368 Stock-based compensation expense 3,265 1,149 715 Total non-GAAP gross profit $187,042 $142,214 $105,622 Gross margin 77.7% 76.4% 76.4%Non-GAAP gross margin 82.1% 81.0% 82.0% Non-GAAP Net Income (Loss) Attributable to BlackLine, Inc.: Net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337)Benefit from income taxes (540) (511) (8,991)Purchase accounting adjustment to revenues — — 716 Amortization of intangibles 13,023 13,310 12,505 Stock-based compensation expense 20,895 16,044 6,526 Change in fair value of contingent consideration 450 628 371 Change in fair value of the common stock warrant liability — 3,490 5,880 Secondary offering costs — 809 — Shelf offering costs 401 818 — Acquisition-related costs — — 1,582 Accretion of debt discount — — 1,303 Accretion of warrant discount — — 754 Total non-GAAP net income (loss) attributable to BlackLine, Inc. $6,425 $1,537 $(5,691) Results of OperationsThe following tables set forth selected historical consolidated statements of operations data, which should be read in conjunction withCritical Accounting Policies and Estimates, Liquidity and Capital Resources, and Contractual Obligations and Commitments included in this Item7, as well as Quantitative and Qualitative Disclosures About Market Risk and the Consolidated Financial Statements and Notes thereto includedelsewhere in this Annual Report on Form 10-K.42 Consolidated statements of operations information was as follows (in thousands): Years Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted (in thousands) Revenues Subscription and support $217,406 $167,081 $122,441 Professional services 10,382 8,522 5,593 Total revenues 227,788 175,603 128,034 Cost of revenues Subscription and support 41,428 33,530 25,900 Professional services 9,446 7,855 4,311 Total cost of revenues 50,874 41,385 30,211 Gross profit 176,914 134,218 97,823 Operating expenses Sales and marketing 128,808 103,967 71,970 Research and development 30,754 23,874 21,125 General and administrative 47,188 36,786 27,911 Total operating expenses 206,750 164,627 121,006 Loss from operations (29,836) (30,409) (23,183)Other income (expense) Interest income 2,136 1,069 4 Interest expense (4) (13) (5,936)Change in fair value of the common stock warrant liability — (3,490) (5,880)Other income (expense), net 2,132 (2,434) (11,812)Loss before income taxes (27,704) (32,843) (34,995)Provision for (benefit from) income taxes 162 208 (8,658)Net loss $(27,866) $(33,051) $(26,337)Net loss attributable to non-controlling interest (62) — — Net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337)Comparison of Years Ended December 31, 2018, 2017, and 2016Revenues Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % *AsAdjusted *AsAdjusted *AsAdjusted (in thousands, except percentages) Subscription and support $217,406 $167,081 $50,325 30% $167,081 $122,441 $44,640 36%Professional services 10,382 8,522 1,860 22% 8,522 5,593 2,929 52%Total revenues $227,788 $175,603 $52,185 30% $175,603 $128,034 $47,569 37% Year Ended December 31, 2018 2017 2016 Dollar-based net revenue retention rate* 108% 112% 116%Number of customers (at end of period)* 2,631 2,208 1,758 Number of users (at end of period)* 222,619 196,612 166,903 *Exclusive of on-premise software 43 The increase in revenues for the year ended December 31, 2018, compared to the year ended December 31, 2017, was primarily due to anincrease in the number of customers, an increase in the number of users added by existing customers, an increase in the number of productspurchased by existing customers in the period, and an increase in non-user based strategic product sales. The total number of customers andusers increased by 19% and 13%, respectively, during the year ended December 31, 2018.The increase in revenues for the year ended December 31, 2017, compared to the year ended December 31, 2016, was primarily due to anincrease in the number of customers, an increase in the number of users added by existing customers and an increase in the number of productspurchased by existing customers in the period. The total number of customers and users increased by 26% and 18%, respectively, during theyear ended December 31, 2017.Cost of revenues Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % *AsAdjusted *AsAdjusted *AsAdjusted (in thousands, except percentages) Subscription and support $41,428 $33,530 $7,898 24% $33,530 $25,900 $7,630 29%Professional services 9,446 7,855 1,591 20% 7,855 4,311 3,544 82%Total cost of revenues $50,874 $41,385 $9,489 23% $41,385 $30,211 $11,174 37%Gross margin 77.7% 76.4% 76.4% 76.4% The increase in cost of revenues for the year ended December 31, 2018, compared to the year ended December 31, 2017, was primarily dueto a $4.6 million increase in salaries, benefits, and stock-based compensation; a $1.2 million increase in amortization of developed technology; a$1.1 million increase in computer software expenses; a $1.0 million increase in depreciation and amortization; a $0.5 million increase in travel-related costs; a $0.4 million increase in overhead-related expenses; a $0.3 million increase in data center-related costs; and a $0.3 million increasein professional services expense. The increase in salaries, benefits, and stock-based compensation was primarily driven by a 13% increase inaverage cost of revenues-related headcount from the year ended December 31, 2017 to the year ended December 31, 2018. Amortization of ourcapitalized software development costs increased due to larger total capitalized costs as we expanded the functionality of our solutions. Computersoftware expenses increased due to expanded technology infrastructure to support sales growth. Depreciation and amortization expense increaseddue to an increase in capital expenditures related to improving customer application performance and to improve customer support levels. Travel-related costs increased due to increased customer implementations due to customer growth.The increase in cost of revenues for the year ended December 31, 2017, compared to the year ended December 31, 2016, was primarily dueto a $7.1 million increase in salaries, benefits and stock-based compensation; a $1.0 million increase in amortization of developed technology; a$0.8 million increase in depreciation and amortization; a $0.8 million increase in data center costs; a $0.6 million increase in overhead-relatedexpenses; a $0.5 million increase in computer software expenses; and a $0.3 million increase in travel-related costs. The increase in salaries,benefits, and stock-based compensation was primarily driven by a 59% increase in average cost of revenues-related headcount from the yearended December 31, 2016 to the year ended December 31, 2017. Amortization of our capitalized software development costs increased due tolarger total capitalized costs as we expanded the functionality of our solutions. Amortization of developed technology increased due to theRunbook Acquisition, which closed on August 31, 2016.Sales and marketing Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % *AsAdjusted *AsAdjusted *AsAdjusted (in thousands, except percentages) Sales and marketing $128,808 $103,967 $24,841 24% $103,967 $71,970 $31,997 44%Percentage of total revenues 56.5% 59.2% 59.2% 56.2% 44 The increase in sales and marketing expenses for the year ended December 31, 2018, compared to the year ended December 31, 2017,was primarily due to a $16.8 million increase in salaries, sales commissions, and incentives; a $5.3 million increase in partner referral fees; a $1.8million increase in travel-related costs; a $1.3 million increase in advertising and trade show expenses; a $0.7 million increase in overhead-relatedexpenses; a $0.5 million increase in professional services expense; a $0.4 million increase in computer software expenses; and a $0.2 millionincrease in depreciation and amortization. These increases were partially offset by a $2.1 million decrease in stock-based compensation, whichwas primarily related to modifications made to Australian stock option awards in the quarter ended September 30, 2017, which increased stock-based compensation for the year ended December 31, 2017. The increase in salaries, sales commissions, and incentives was primarily driven byan increase in headcount and revenue growth. Our sales and marketing average headcount increased 15% from the year ended December 31,2017 to the year ended December 31, 2018. The increases in partner referral fees was primarily driven by the expansion of our relationships withtechnology vendors, including SAP. Travel-related costs increased due to the expansion of our sales organization. Overhead-related costsincreased primarily due to the opening of new sales offices in Paris and Singapore in 2018. The increase in advertising and trade shows wasprimarily due to an increase in our marketing efforts. The increase in professional services expense was primarily due to growth in our programspend and higher user conference related expenses.The increase in sales and marketing expenses for the year ended December 31, 2017, compared to the year ended December 31, 2016,was primarily due to a $13.6 million increase in salaries, sales commissions and incentives; a $8.3 million increase in stock-based compensation;a $4.1 million increase in advertising and trade show expenses; a $3.6 million increase in commissions payable to third-party partners; a $1.1million increase in travel-related costs; a $0.7 million increase in overhead-related expenses; a $0.5 million increase in computer softwareexpenses; and a $0.3 million increase in depreciation and amortization. These increases were partially offset by a $0.3 million decrease inprofessional services expense. The increase in salaries, sales commissions and incentives was primarily driven by an increase in headcount andrevenue growth. Our sales and marketing average headcount increased by 27% from the year ended December 31, 2016 to the year endedDecember 31, 2017. The increase in our stock-based compensation was primarily related to modifications made to Australian stock option awardsin the quarter ended September 30, 2017. The increases in commissions payable to third party-partners was primarily driven by the expansion ofour relationships with technology vendors, including SAP. The increase in advertising and trade shows was primarily due to an increase in ourmarketing efforts. Travel-related costs have increased due to the expansion of our sales organization.Research and development Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % (in thousands, except percentages) Research and development, gross $36,505 $28,672 $7,833 27% $28,672 $24,424 $4,248 17%Capitalized internally developed softwarecosts (5,751) (4,798) (953) 20% (4,798) (3,299) (1,499) 45%Research and development, net $30,754 $23,874 $6,880 29% $23,874 $21,125 $2,749 13%Percentage of total revenues 13.5% 13.6% 13.6% 16.5% The increase in research and development expenses for the year ended December 31, 2018, compared to the year ended December 31,2017, was primarily due to an $8.1 million increase in salaries, benefits, and stock-based compensation and a $0.3 million increase in overhead-related expenses, partially offset by a $1.0 million increase in capitalized software costs, which resulted in a decrease in expenses in the periodscapitalized, and a $0.6 million decrease in professional services expense. The increase in salaries, benefits, and stock-based compensation wasprimarily driven by an increase in average headcount, which increased 24% from the year ended December 31, 2017 to the year ended December31, 2018. The increase in capitalized software costs was primarily due to an increase in our headcount, as well as higher capitalization rates.The increase in research and development expenses for the year ended December 31, 2017, compared to the year ended December 31,2016, was primarily due to a $3.1 million increase in salaries and benefits; a $0.7 million increase in professional services expense, and a $0.2million increase in travel-related costs, partially offset by a $1.5 million increase in capitalized software costs, which resulted in a decrease inexpenses in the periods capitalized. Our research and development average headcount increased by 18% from the year ended December 31, 2016to the year ended December 31, 2017.45 General and administrative Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % *AsAdjusted *AsAdjusted (in thousands, except percentages) General and administrative $47,188 $36,786 $10,402 28% $36,786 $27,911 $8,875 32%Percentage of total revenues 20.7% 20.9% 20.9% 21.8% The increase in general and administrative expenses for the year ended December 31, 2018, compared to the year ended December 31,2017, was primarily due to an $8.2 million increase in salaries, benefits, and stock-based compensation; a $1.9 million increase in foreign currencylosses; a $0.9 million increase in overhead-related expenses; a $0.4 million increase in travel-related costs; and a $0.2 million increase incomputer software expenses. These increases were partially offset by a $0.6 million decrease in bad debt expense primarily related to olderreceivables for on-premise license receivables that were reserved for in 2017; a $0.2 million decrease in depreciation and amortization; and a $0.2million decrease in contingent consideration expense related to the increase in fair value of the contingent consideration. The increase in salaries,benefits, and stock-based compensation was primarily driven by an increase in average headcount, which increased 27% from the year endedDecember 31, 2017 to the year ended December 31, 2018. The increase in foreign currency losses was primarily due to the impact of foreigncurrency rates related to the Euro and British Pound during the year ended December 31, 2018, compared to the year ended December 31, 2017,on open intercompany balances denominated in foreign currencies. Overhead-related expenses increased primarily due to the expansion of ourcorporate headquarters in 2018.The increase in general and administrative expenses for the year ended December 31, 2017, compared to the year ended December 31,2016, was primarily due to a $4.2 million increase in professional services expense; a $4.1 million increase in salaries, benefits and stock-basedcompensation; a $0.9 million increase in non-income taxes; a $0.6 million increase in depreciation and amortization; and a $0.5 million increase inbad debt expenses. The increase in professional services expense comprised primarily of legal, accounting and consulting costs associated withbeing a public company and costs associated with the secondary offering that was completed in the quarter ended June 30, 2017 and the shelfoffering that was completed in the quarter ended December 31, 2017. The increase in salaries, benefits and stock-based compensation wasprimarily driven by a 41% increase in our general and administrative average headcount from the year ended December 31, 2016 to the year endedDecember 31, 2017. The increase in bad debt expenses was primarily related to older receivables for on-premise license receivables. Theincreases in general and administrative expenses were partially offset by a $1.7 million increase in foreign currency gains primarily related toforeign-denominated cash and the timing of accounts receivable settlements between quarters.Interest income Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % (in thousands, except percentages)Interest income $2,136 $1,069 $1,067 100% $1,069 $4 $1,065 **Not meaningful The increase in interest income during the year ended December 31, 2018, compared year ended December 31, 2017, was primarily due toan increase in interest rates and, to a lesser extent, a higher average balance of investments in marketable securities in the year ended December31, 2018, compared to the year ended December 31, 2017.The increase in interest income for the year ended December 31, 2017, compared to the year ended December 31, 2016, was due tointerest earned from investments in marketable securities. In November 2016, we completed our initial public offering and used a portion of theproceeds to invest in marketable securities.46 Interest expense Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % (in thousands, except percentages) Interest expense $4 $13 $(9) (69%) $13 $5,936 $(5,923) (100%)Interest expense was minimal during the year ended December 31, 2018.The decrease in interest expense for the year ended December 31, 2017, compared to the year ended December 31, 2016, was due to thetermination of our credit facility and associated repayment of term loans in November 2016.Change in fair value of common stock warrant liability Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % (in thousands, except percentages) Change in fair value of commonstock warrant liability $— $(3,490) $3,490 (100%) $(3,490) $(5,880) $2,390 (41%) In May 2017, warrants to purchase 499,999 shares of common stock were net exercised, resulting in the issuance of 428,033 shares ofcommon stock and, accordingly, there will be no further changes in the fair value. We valued our common stock warrants using a binomial lattice model. The primary input into the binomial lattice model was the fair valueof our common stock. The fair value of our common stock increased by approximately 26% between January 1, 2017 and May 26, 2017, the datethe warrants were exercised, increasing our common stock liability by $3.5 million.Provision for (benefit from) income taxes Year Ended December 31, Change Year Ended December 31, Change 2018 2017 $ % 2017 2016 $ % *As Adjusted *As Adjusted *AsAdjusted (in thousands, except percentages) Provision for (benefit from) incometaxes $162 $208 $(46) (22%) $208 $(8,658) $8,866 (102%)We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. For the year ended December 31,2018, our annual estimated effective tax rate differed from the U.S. federal statutory rate of 21% primarily as a result of state taxes, foreign taxes,and changes in our valuation allowance for domestic income taxes. For the years ended December 31, 2018 and 2017, we recorded $0.2 million inincome tax expense. For the year ended December 31, 2018, we continued to maintain a full valuation allowance on our U.S. federal and state netdeferred tax assets as it was more likely than not that those deferred tax assets will not be realized. The provision for income taxes for the yearended December 31, 2018 was primarily related to our international operations.For the years ended December 31, 2017 and 2016, our annual estimated effective tax rate differed from the U.S. federal statutory rate of34% as a result of state taxes, foreign taxes, and changes in our valuation allowance for domestic income taxes. For the year ended December31, 2017, we recorded $0.2 million in income tax expense primarily related to our international operations. For the year ended December 31, 2016,we recorded a $8.7 million income tax benefit as our deferred tax liabilities from acquired intangibles exceeded our deferred tax assets during theyear, allowing for the partial recognition of deferred tax assets primarily related to U.S. losses. At December 31, 2016, our U.S. deferred assetsexceeded our U.S. deferred tax liabilities and, given the uncertainty regarding the realizability of our U.S. deferred tax assets, we recorded a fullvaluation allowance against all our U.S. federal and state net deferred tax assets. For the year ended December 31, 2017, we continued tomaintain a full valuation allowance on our U.S. federal and state net deferred tax assets as it was more likely than not that those deferred taxassets will not be realized.47 Liquidity and Capital ResourcesAt December 31, 2018, our principal sources of liquidity were $132.6 million of cash and cash equivalents and marketable securities, whichprimarily consist of short-term, investment-grade commercial paper, corporate bonds, and U.S. treasury securities. We believe our existing cashand cash equivalents, investments in marketable securities and cash from operations will be sufficient to meet our working capital needs, capitalexpenditures 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 interestexpense and may include negative covenants or other restrictions on our business that could impair our operating flexibility. We can provide noassurance that financing will be available at all or, if available, that we would be able to obtain financing on terms favorable to us. If we are unableto raise additional capital when needed, we would be required to curtail our operating activities and capital expenditures, and our businessoperating results and financial condition would be adversely affected.Historical Cash FlowsThe following table sets forth a summary of our cash flows for the periods indicated: Year Ended December 31, 2018 2017 2016 (in thousands) Net cash provided by (used in) operating activities $16,140 $6,424 $(4,808)Net cash used in investing activities $(15,977) $(7,031) $(119,674)Net cash provided by financing activities $14,522 $9,593 $131,395 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 recent periods, our net loss has generally been significantly greater than our use of cash for operating activities dueto our subscription-based revenue model in which billings occur in advance of revenue recognition, as well as the substantial amount of non-cashcharges which we incur. Non-cash charges primarily include depreciation and amortization, stock-based compensation, non-cash interest expenserelated to accretion and write-off of debt discounts, paid in kind interest, and deferred taxes.For the year ended December 31, 2018, cash provided by operations was $16.1 million resulting from net non-cash expenses of $42.2million and net cash flow provided as a result of changes in operating assets and liabilities of $1.8 million, largely offset by our net loss of $27.9million. The $1.8 million of net cash flows provided as a result of changes in our operating assets and liabilities reflected a $24.7 million increase indeferred revenue as a result of the growth of our customer and user base and a $4.4 million increase in accrued expenses and other currentliabilities primarily associated with increases in employee-related accruals as a result of increases in headcount and bonuses. This change in ouroperating assets and liabilities was largely offset by a $13.2 million increase in accounts receivable; a $9.5 million increase in other assets; a $4.0million decrease in accounts payable; and a $0.4 million increase in prepaid expenses and other current assets.For the year ended December 31, 2017, cash provided by operations was $6.4 million resulting from net non-cash expenses of $40.5 million,largely offset by our net loss of $33.1 million and net cash flow used as a result of changes in operating assets and liabilities of $1.0 million. The$1.0 million of net cash flows used as a result of changes in our operating assets and liabilities reflected a $20.2 million increase in accountsreceivable due to the growth of our customer and user base; a $7.2 million increase in other assets; a $2.0 million increase in prepaid expensesand other current assets; and a $0.2 million decrease in other long-term liabilities. These changes in our operating assets and liabilities werepartially offset by a $26.5 million increase in deferred revenue as a result of the growth of our customer and user base, which are billed in advanceof our revenue recognition, and a $2.1 million increase in accrued expenses and other current liabilities primarily associated with increases inemployee-related accruals as a result of increases in headcount and bonuses.48 For the year ended December 31, 2016, cash used in operations was $4.8 million, resulting from our net loss of $26.3 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 $25.3 million andchanges in our operating assets and liabilities of $2.7 million. The $2.7 million of net cash flows provided as a result of changes in our operatingassets and liabilities reflected a $24.6 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 largely offset by a $15.5 million increase in accounts receivable due to thegrowth of our customer and user base, a $7.4 million increase in other assets, a $5.2 million increase in prepaid expenses and other current assetsdue primarily to increases in prepaid software subscriptions and prepaid insurance, and a $1.2 million decrease in other long-term liabilities dueprimarily to amortization of leasehold improvement allowances and free rent periods associated with the expansion of our corporate headquarters.Net Cash Used In Investing ActivitiesOur investing activities consist primarily of investments in and maturities of marketable securities, capital expenditures for property andequipment and capitalized software development costs.For the year ended December 31, 2018, cash used in investing activities was $16.0 million as a result of $6.3 million in purchases ofproperty and equipment, $5.7 million in capitalized software development costs, and $4.0 million of purchases of marketable securities, net ofproceeds from maturities and sales.For the year ended December 31, 2017, cash used in investing activities was $7.0 million as a result of $4.6 million in capitalized softwaredevelopment costs and $4.0 million in purchases of property and equipment, partially offset by $1.6 million proceeds from maturities, net ofpurchases of marketable securities.For the year ended December 31, 2016, cash used in investing activities was $119.7 million as a result of $83.2 million of investments inmarketable securities and the Runbook Acquisition, with a total purchase price of $34.1 million, partially offset by cash acquired in the amount of$2.6 million, $3.3 million in capitalized software development costs and $1.7 million of purchases of property and equipment.Net Cash Provided By Financing ActivitiesFor the year ended December 31, 2018, cash provided by financing activities was $14.5 million primarily as a result of $14.0 million ofproceeds from the exercises of stock options and a $4.3 million investment from our redeemable non-controlling interest, partially offset by $3.4million of acquisitions of common stock for tax withholding obligations and $0.4 million of principal payments on capital lease obligations.For the year ended December 31, 2017, cash provided by financing activities was $9.6 million primarily as a result of $10.3 million ofproceeds from the exercises of stock options, partially offset by $0.5 million of principal payments on capital lease obligations.For the year ended December 31, 2016, cash provided by financing activities was $131.4 million as a result of the successful completion ofour initial public offering, which resulted in proceeds of $151.9 million, net of underwriting discounts and commissions and other offering expenses,including $4.4 million in cash paid for deferred offering costs; $34.3 million in proceeds under our credit facility, $3.1 million in proceeds from ourissuance of common stock to former employees of Runbook Company B.V.; and $2.9 million in proceeds from exercise of stock options. Theseinflows were partially offset by the termination of our credit facility in November 2016 and the associated repayment of term loans and prepaymentpenalties in the amount of $60.7 million. 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. At December 31, 2018 and 2017, we had backlog of approximately $285.0 million49 and $225.1 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.Contractual Obligations and CommitmentsThe following table summarizes our contractual obligations at December 31, 2018: Payments Due by Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Operating lease obligations (1) $21,613 $7,059 $9,093 $5,224 $237 Purchase obligations 5,232 2,254 2,978 — — $26,845 $9,313 $12,071 $5,224 $237(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, 2018, liabilities for unrecognized tax benefits of $1.2 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.Commitments under letters of credit at December 31, 2018 were scheduled to expire as follows (in thousands): Total Less than 1 Year 3-5 Years Letters of credit $255 $— $255 Letters of credit are maintained pursuant to certain of our lease arrangements. The letters of credit remain in effect at varying levels throughthe terms of the related agreements.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, directorsand 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. At December 31, 2018, 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.50 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.Revenue Recognition and Deferred RevenueRevenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the considerationwe expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of subscriptionand support services and professional services, which are generally capable of being distinct and accounted for as separate performanceobligations. Our agreements do not contain any refund provisions other than in the event of our non-performance or breach.We determine revenue recognition through the following steps: •Identification of the contract, or contracts, with a customer •Identification of the performance obligations in the contract •Determination of the transaction price •Allocation of the transaction price to the performance obligations in the contract •Recognition of revenue when, or as, we satisfy a performance obligationSubscription and support revenue – Customers pay subscription and support fees for access to our 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. Subscription services, which allow customers touse hosted software over the contract period without taking possession of the software, are considered distinct performance obligations and arerecognized ratably as we transfer control evenly over the contract period.Subscription and support revenue also includes software and related maintenance and support fees on legacy BlackLine solutions andRunbook Company B.V. (“Runbook”) software. Software licenses for legacy BlackLine solutions and Runbook software provide the customer with aright to use the software as it exists when made available to the customer. Customers may have purchased perpetual licenses or term basedlicenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.Software licenses are bundled with software maintenance and support, and the transaction price of the contract is allocated between thesoftware licenses and the software maintenance and support. Maintenance and support convey rights to new software and upgrades released overthe contract period and provide support, tools, and training to help customers deploy and use products more efficiently. Software licenses areconsidered distinct performance obligations and revenue is recognized at a point in time when control of the license has transferred and the licenseperiod commences. Maintenance and support are distinct performance obligations that are satisfied over time, and revenue is recognized ratablyover the contract period as customers simultaneously consume and receive benefits.Professional services revenue – Professional services consist of implementation and consulting services to assist our customers as theydeploy our solutions. These services are considered distinct performance obligations. Professional services do not result in significantcustomization of the subscription service. We apply the practical expedient to recognize professional services revenue when we have the right toinvoice based on time and materials incurred.51 Significant judgments – Our contracts with customers often include promises to transfer multiple products and services. Determiningwhether products and services are considered distinct performance obligations that should be accounted for separately versus together mayrequire significant judgment. Judgment is also required to determine the stand alone selling price (“SSP”) for each distinct performance obligation.We typically have more than one SSP for our SaaS solutions and professional services. Additionally, we have determined that there are nothird-party offerings reasonably comparable to our solutions. Therefore, we determine the SSPs of subscriptions to the SaaS solutions andprofessional services based on numerous factors including our overall pricing objectives, geography, customer size and number of users, anddiscounting practices. We use historical maintenance renewal fees to estimate SSP for maintenance and support fees bundled with softwarelicenses. We use the residual method to estimate SSP of software licenses, because license pricing is highly variable and not sold separatelyfrom maintenance and support.Contract balances – Timing of revenue recognition may differ from the timing of invoicing to customers. We record an unbilled receivablewhen revenue is recognized prior to invoicing, and deferred revenue when revenue is recognized subsequent to invoicing. We generally invoicecustomers annually at the beginning of each annual contract period. We record a receivable related to revenue recognized for multi-yearagreements as we have an unconditional right to invoice and receive payment in the future related to those services.Deferred revenue is comprised mainly of billings related to our SaaS solutions in advance of revenue being recognized. Deferred revenuealso includes payments for: professional services to be performed in the future; legacy BlackLine maintenance and support; Runbookmaintenance, support, license, and implementation; and other offerings for which we have been paid in advance and earns the revenue when wetransfer control of the product or service.Changes in deferred revenue for the years ended December 31, 2018, 2017, and 2016 were primarily due to additional billings in the periods,partially offset by revenue recognized of $104.2 million, $78.2 million, and $52.9 million, respectively, that was previously included in the deferredrevenue balance at December 31, 2017, 2016, and 2015, respectively.The transaction price is generally determined by the stated fixed fees in the contract, excluding any related sales taxes. Transaction priceallocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized”),which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenuewas $285.0 million at December 31, 2018, of which we expect to recognize approximately 62% over the next 12 months and the remainderthereafter.Fees are generally due and payable upon receipt of invoice or within 30 days. None of our contracts include a significant financingcomponent.Assets recognized from the costs to obtain a contract with a customer – We recognize an asset for the incremental and recoverablecosts of obtaining a contract with a customer if we expect the benefit of those costs to be one year or longer. We have determined that certainsales incentive programs to our employees ("deferred customer contract acquisition costs") and our partners ("partner referral fees") meet therequirements to be capitalized. Deferred customer acquisition costs related to new revenue contracts and upsells are deferred and then amortizedstraight line over the expected period of benefit that we have determined to be five years, based upon both the product turnover rate and estimatedcustomer life. Partner referral fees are deferred and then amortized on a straight-line basis over the related contractual period, as the fees forrenewals are commensurate with fees incurred for the initial contract. Deferred customer acquisition costs and partner referral fees are includedwithin other assets and prepaid expenses and other current assets, respectively, on the consolidated balance sheets. There were no impairmentlosses in relation to the costs capitalized for the periods presented.Amortization expense related to the asset recognized from the costs to obtain a contract with a customer is included in sales and marketingexpenses in the consolidated statements of operations and was $23.6 million, $15.6 million, and $9.8 million for the years ended December 31,2018, 2017, and 2016, respectively.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 is recognized on a straight-line basis over the period during which an employeeis required to provide service in exchange for the award, usually the vesting period, which is generally four years. We recognize the fair value ofstock options which52 contain performance conditions based upon the probability of the performance conditions being met, using the graded vesting method. Forfeituresare recognized in the period they occur.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. We determined the expected volatility for the Employee StockPurchase Plan (“ESPP”) based on the historical volatility of our common stock. •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. The expected term for our ESPP represents the amount of time remaining in the 12-month offering period. •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. At December 31, 2018, 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 incurred53 during the development. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intendedpurpose. 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 the amounts recorded. We are required to pay up to a maximum of $8 million of contingent consideration relating to our 2013 Acquisition if werealize a tax benefit from the use of net operating losses generated from the stock option exercises concurrent with the 2013 Acquisition. Wedetermine the fair value of contingent consideration by discounting estimated future taxable income. The significant inputs used in the fair valuemeasurement of contingent consideration are the timing and amount of taxable income in any given period and determining an appropriate discountrate which considers the risk associated with the forecasted taxable income. Significant changes in the estimated future taxable income and theperiods in which 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.The Tax Act was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. The Tax Act reduces the U.S.statutory tax rate from 34% to 21% and creates a territorial tax system with a onetime mandatory tax on previously deferred foreign earnings of USsubsidiaries, among other provisions. As of December 31, 2018, we had completed our analysis of the Tax Act. As a result of a full valuationallowance on U.S. net deferred tax assets, the Tax Act did not impact our effective tax rate.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.54 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.Determining the fair value of the common stock warrants each period required our management to make assumptions and judgments. Theseestimates involved 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 was determined using a binomial lattice valuation model. The significant inputs usedin the fair value measurement of the common stock warrants were the estimated fair value of our common stock and to a lesser extent theexpected stock volatility, the probability of a change in control and future stock issuances which impacted the term of the warrants. The fair valueof our common stock was based on a number of quantitative and qualitative factors as described in Stock-Based Compensation section above.In May 2017, warrants to purchase 499,999 shares of common stock were net exercised resulting in the issuance of 428,033 shares ofcommon stock and, accordingly, there we be no further changes in the fair value.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.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 $132.6 million at December 31, 2018. Our cash equivalents and marketablesecurities consist of highly liquid, investment-grade commercial paper, corporate bonds, U.S. treasury bonds, and asset-backed securities. Thecarrying amount of our cash equivalents and marketable securities reasonably approximates fair value due to the highly liquid nature of theseinstruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciarycontrol of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to marketrisk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-termnature of our investment portfolio, however, we do not believe an immediate 10% increase or decrease in interest rates would have a materialeffect on the fair market value of our portfolio. We therefore do not expect our operating results or cash flows to be materially affected by a suddenchange in market interest rates.55 We do not believe our cash equivalents and marketable securities have significant risk of default or illiquidity. While we believe our cashequivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments willnot be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or morefinancial institutions that are in excess of federally insured limits. We cannot be assured that we will not experience losses on these deposits.Foreign Currency RiskWhile we primarily transact with customers in the U.S. Dollar, we also transact in foreign currencies, including the Euro, British Pound,Canadian Dollar, Australian Dollar, Singapore Dollar, Philippine Peso, South African Rand, Malaysian Ringgit, Romanian Leu, Hong Kong Dollar,Japanese Yen, and Polish Zloty, due to foreign operations and customer sales. We expect to continue to grow our foreign operations and customersales. Our international subsidiaries maintain certain asset and liability balances that are denominated in currencies other than the functionalcurrencies of these subsidiaries, which is the U.S. Dollar for all international subsidiaries, with the exception of BlackLine K.K., for which theJapanese Yen is the functional currency. Changes in the value of foreign currencies relative to the U.S. Dollar can result in fluctuations in our totalassets, liabilities, revenue, operating expenses, and cash flows. The effect of a hypothetical 10% change in foreign currency exchange ratesapplicable to our business would not have had a material impact on our cash and marketable securities for the year ended December 31, 2018.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. 56 Item 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGEReport of Independent Registered Public Accounting Firm58Consolidated Balance Sheets at December 31, 2018 and 201760Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 201661Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017, and 201662Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and 201663Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 201664Notes to Consolidated Financial Statements67 57 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of BlackLine, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of BlackLine, Inc. and its subsidiaries (the “Company”) as of December 31, 2018and 2017, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the threeyears in the period ended December 31, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). Wealso have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Companyas of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control - Integrated Framework (2013) issued by the COSO. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue fromcontracts with customers in 2018. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financialreporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report onInternal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registeredwith the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and thePCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtainreasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, andwhether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of theconsolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and58 procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions ofthe assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made onlyin accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 28, 2019 We have served as the Company’s auditor since 2014.59 BLACKLINE, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except shares and par values) December 31, December 31, 2018 2017 *As Adjusted ASSETS Current assets: Cash and cash equivalents $46,181 $31,104 Marketable securities 86,396 81,476 Accounts receivable, net of allowances for doubtful accounts of $46 and $695 at December 31, 2018 and 2017, respectively 74,902 61,918 Prepaid expenses and other current assets 14,042 13,956 Total current assets 221,521 188,454 Capitalized software development costs, net 9,023 6,824 Property and equipment, net 13,536 12,769 Intangible assets, net 27,785 40,808 Goodwill 185,138 185,138 Other assets 36,865 26,820 Total assets $493,868 $460,813 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,442 $7,254 Accrued expenses and other current liabilities 24,705 20,874 Deferred revenue 129,074 104,184 Short-term portion of contingent consideration 2,008 2,008 Total current liabilities 159,229 134,320 Contingent consideration 4,308 3,858 Deferred tax liabilities, net 1,116 1,743 Deferred revenue, noncurrent 277 468 Other long-term liabilities 2,982 3,119 Total liabilities 167,912 143,508 Commitments and contingencies (Note 14) Redeemable non-controlling interest (Note 4) 4,387 — Stockholders' equity: Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding at December 31, 2018 and 2017 — — Common stock, $0.01 par value, 500,000,000 shares authorized, 54,682,647 issued and outstanding at December 31, 2018 and 52,982,976 issued and outstanding at December 31, 2017 547 530 Additional paid-in capital 451,571 419,628 Accumulated other comprehensive income (loss) 45 (63)Accumulated deficit (130,594) (102,790)Total stockholders' equity 321,569 317,305 Total liabilities, redeemable non-controlling interest, and stockholders' equity $493,868 $460,813 * See Note 3 for a summary of adjustments. The accompanying notes are an integral part of these consolidated financial statements.60 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Revenues Subscription and support $217,406 $167,081 $122,441 Professional services 10,382 8,522 5,593 Total revenues 227,788 175,603 128,034 Cost of revenues Subscription and support 41,428 33,530 25,900 Professional services 9,446 7,855 4,311 Total cost of revenues 50,874 41,385 30,211 Gross profit 176,914 134,218 97,823 Operating expenses Sales and marketing 128,808 103,967 71,970 Research and development 30,754 23,874 21,125 General and administrative 47,188 36,786 27,911 Total operating expenses 206,750 164,627 121,006 Loss from operations (29,836) (30,409) (23,183)Other income (expense) Interest income 2,136 1,069 4 Interest expense (4) (13) (5,936)Change in fair value of the common stock warrant liability — (3,490) (5,880)Other income (expense), net 2,132 (2,434) (11,812)Loss before income taxes (27,704) (32,843) (34,995)Provision for (benefit from) income taxes 162 208 (8,658)Net loss (27,866) (33,051) (26,337)Net loss attributable to non-controlling interest (Note 4) (62) — — Net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337)Basic net loss per share attributable to BlackLine, Inc. $(0.52) $(0.63) $(0.62)Shares used to calculate basic net loss per share 53,912 52,161 42,497 Diluted net loss per share attributable to BlackLine, Inc. $(0.52) $(0.63) $(0.62)Shares used to calculate diluted net loss per share 53,912 52,161 42,497 * See Note 3 for a summary of adjustments. The accompanying notes are an integral part of these consolidated financial statements.61 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands) Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Net loss$(27,866) $(33,051) $(26,337)Other comprehensive income (loss): Net change in unrealized gain on marketable securities, net of tax of $0 forthe years ended December 31, 2018, 2017, and 2016 (26) (22) (41)Foreign currency translation 266 — — Other comprehensive income (loss) 240 (22) (41)Comprehensive loss (27,626) (33,073) (26,378)Less: Other comprehensive income attributable to redeemable non-controllinginterest 70 — — Comprehensive loss attributable to BlackLine, Inc.$(27,696) $(33,073) $(26,378)* See Note 3 for a summary of adjustments. The accompanying notes are an integral part of these consolidated financial statements.62 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands) Common Stock TreasuryStock, AdditionalPaid-in AccumulatedOtherComprehensive Accumulated Shares Amount at cost Capital Income (Loss) Deficit Total *As Adjusted Balance at December 31, 2015 40,673 $407 $(254) $214,171 $— $(43,311) $171,013 Stock option exercises 523 5 — 2,855 — — 2,860 Common stock issuance 192 2 — 3,073 — — 3,075 Issuance of common stock in connection with initial public offering, net of offering costs 9,890 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 attributable to BlackLine, Inc. — — — — — (26,337) (26,337)Balance at December 31, 2016 51,278 513 — 378,272 (41) (69,667) 309,077 Adjustment for change in accounting policy for stock option forfeitures — — — 72 — (72) — Balance at January 1, 2017 51,278 513 — 378,344 (41) (69,739) 309,077 Net exercise of stock warrants 428 4 — 14,866 — — 14,870 Stock option exercises 1,277 13 — 10,239 — — 10,252 Stock-based compensation — — — 16,179 — — 16,179 Other comprehensive loss — — — — (22) — (22)Net loss attributable to BlackLine, Inc. — — — — — (33,051) (33,051)Balance at December 31, 2017 52,983 530 — 419,628 (63) (102,790) 317,305 Stock option exercises 1,698 17 — 13,987 — — 14,004 Vesting of restricted stock units 2 — — — — — — Acquisition of common stock for tax withholding obligations — — — (3,356) — — (3,356)Stock-based compensation — — — 21,312 — — 21,312 Other comprehensive income — — — — 108 — 108 Net loss attributable to BlackLine, Inc. — — — — — (27,804) (27,804)Balance at December 31, 2018 54,683 $547 — $451,571 $45 $(130,594) $321,569 * See Note 3 for a summary of adjustments. The accompanying notes are an integral part of these consolidated financial statements.63 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Years Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Cash flows from operating activities Net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337)Net loss attributable to redeemable non-controlling interest (Note 4) (62) — — Net loss (27,866) (33,051) (26,337)Adjustments to reconcile net loss to net cash provided by (used in) operatingactivities: Depreciation and amortization 22,336 19,971 17,424 Change in fair value of common stock warrant liability — 3,490 5,880 Change in fair value of contingent consideration 450 628 371 Stock-based compensation 20,895 16,044 6,526 (Accretion) amortization of purchase discounts/premiums on marketablesecurities, net (928) 37 — Net foreign currency losses 420 — — Deferred income taxes (923) (272) (9,467)Provision for (benefit from) doubtful accounts receivable (84) 565 — Accretion of debt discount and accrual of paid-in-kind interest — — 4,557 Payment of paid-in-kind interest — — (6,418)Changes in operating assets and liabilities: Accounts receivable (13,207) (20,189) (15,541)Prepaid expenses and other current assets (449) (2,035) (5,214)Other assets (9,475) (7,176) (7,434)Accounts payable (4,008) (25) 3,544 Accrued expenses and other current liabilities 4,417 2,120 3,864 Deferred revenue 24,699 26,504 24,626 Other long-term liabilities (137) (187) (1,189)Net cash provided by (used in) operating activities 16,140 6,424 (4,808)Cash flows from investing activities Purchases of marketable securities (122,530) (76,610) (83,192)Proceeds from maturities of marketable securities 111,394 78,205 — Proceeds from sales of marketable securities 7,118 — — Capitalized software development costs (5,675) (4,624) (3,270)Purchases of property and equipment (6,284) (4,002) (1,724)Acquisition, net of cash acquired — — (31,488)Net cash used in investing activities (15,977) (7,031) (119,674)Cash flows from financing activities Investment from redeemable non-controlling interest 4,317 — — Principal payments on capital lease obligations (443) (549) (124)Proceeds from exercises of stock options 14,004 10,252 2,860 Acquisition of common stock for tax withholding obligations (3,356) — — Payments of initial public offering costs — (110) (4,372)Proceeds from term loan, net of issuance costs — — 34,300 Principal payments on term loan and prepayment penalties — — (60,706)Proceeds from issuance of common stock — — 3,075 Proceeds from initial public offering, net of underwriting discounts andcommissions — — 156,362 Net cash provided by financing activities 14,522 9,593 131,395 Effect of foreign currency exchange rate changes on cash, cash equivalents, andrestricted cash 266 — — Net increase in cash, cash equivalents, and restricted cash 14,951 8,986 6,913 64 Cash, cash equivalents, and restricted cash, beginning of period 31,504 22,518 15,605 Cash, cash equivalents, and restricted cash, end of period $46,455 $31,504 $22,518 Reconciliation of cash, cash equivalents, and restricted cash to the consolidatedbalance sheets Cash and cash equivalents at end of period $46,181 $31,104 $22,118 Restricted cash included within prepaid expenses and other current assets at end ofperiod — 400 — Restricted cash included within other assets at end of period 274 — 400 Total cash, cash equivalents, and restricted cash at end of period shown in theconsolidated statements of cash flows $46,455 $31,504 $22,518 * See Note 3 for a summary of adjustments. The accompanying notes are an integral part of these consolidated financial statements.65 BLACKLINE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSSUPPLEMENTAL CASH FLOW DISCLOSURE(in thousands) Years Ended December 31, 2018 2017 2016 Supplemental disclosures of cash flow information Cash paid for interest $— $8 $8,646 Cash paid for income taxes $591 $868 $176 Non-cash financing and investing activities Stock-based compensation capitalized for software development $417 $135 $102 Net exercise of stock warrants $— $14,870 $— Capitalized software development costs included in accounts payable and accrued expenses and other current liabilities at end of period $359 $331 $153 Purchases of property and equipment included in accounts payable and accrued expenses and other current liabilities at end of period $168 $293 $63 Leasehold improvements paid directly by landlord $— $1,176 $— Deferred offering costs included in accounts payable and accrued expenses and other current liabilities at end of period $— $— $110 The accompanying notes are an integral part of these consolidated financial statements. 66 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 processincluding account reconciliations, variance analysis of account balances, journal entry capabilities, and certain types of data matching capabilities.The Company is a holding company and conducts its operations through its wholly-owned subsidiary, BlackLine Systems, Inc. (“BlackLineSystems”). BlackLine Systems funded its business with investments from its founder and cash flows from operations until September 3, 2013,when the Company acquired BlackLine Systems, and Silver Lake Sumeru and Iconiq acquired a controlling interest in the Company, which isreferred to as the “2013 Acquisition.”On August 31, 2016 the Company acquired Runbook Company B.V. (“Runbook”), which is referred to as the “Runbook Acquisition.”The Company is headquartered in Los Angeles, California and has offices in New York, Vancouver, London, Paris, Frankfurt, Sydney,Melbourne, Kuala Lumpur, Netherlands, Poland, Romania, Singapore, and South Africa.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.Redeemable non-controlling interestThe Company's Japanese subsidiary (“BlackLine K.K.”) is not wholly owned. The agreements with the minority investors of BlackLine K.K.contain redemption features whereby the interest held by the minority investors are redeemable either (i) at the option of the minority investors or(ii) at the option of the Company, both beginning on the seventh anniversary of the initial capital contribution. If the interest of the minorityinvestors were to be redeemed under these agreements, the Company would be required to redeem the interest based on a prescribed formuladerived from the relative revenue of BlackLine K.K. and the Company. The balance of the redeemable non-controlling interest is reported at thegreater of the initial carrying amount adjusted for the redeemable non-controlling interest's share of earnings or losses and other comprehensiveincome or loss, or its estimated redemption value. The resulting changes in the estimated redemption amount (increases or decreases) arerecorded with corresponding adjustments against retained earnings or, in the absence of retained earnings, additional paid-in-capital. Theseinterests are presented on the consolidated balance sheets outside of equity under the caption "Redeemable non-controlling interest."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.67 On an ongoing basis, management evaluates its estimates, primarily those related to determining the stand alone selling price (“SSP”) forseparate deliverables in the Company’s subscription revenue arrangements, allowance for doubtful accounts, fair value of assets and liabilitiesassumed in a business combination, recoverability of goodwill and long-lived assets, useful lives associated with long-lived assets, income taxes,contingencies, fair value of contingent consideration, and the valuation and assumptions underlying stock-based compensation and common stockwarrants. These estimates are based on historical data and experience, as well as various other factors that management believes to bereasonable under the circumstances. Actual results could differ from those estimates.ReclassificationsCertain prior-period amounts have been reclassified to conform to the current-period presentation. These reclassifications had no impact onthe previously-reported consolidated results of operations or stockholders' equity.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.Restricted cashIncluded in other assets at December 31, 2018 and in prepaid expenses and other current assets at 2017 was cash totaling $0.3 million and$0.4 million, respectively, which was required to be restricted as to use by the Company’s office leaseholder to collateralize a standby letter ofcredit.Investments in Marketable SecuritiesThe Company’s marketable securities consist of commercial paper, corporate bonds, U.S. treasury securities, and asset-backedsecurities. The Company classifies its marketable securities as available-for-sale at the time of purchase, and the Company reevaluates suchclassification as of each balance sheet date. All marketable securities are recorded at their estimated fair value, with any unrealized gains andlosses reported as a component of stockholders’ equity until realized or until a determination is made that an other-than-temporary decline inmarket value has occurred. Impairments are considered to be other than temporary if they are related to deterioration in credit risk or if it is likelythe Company will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value deemed to be otherthan temporary are determined based on the specific identification method and are reported in other income (expense), net in the consolidatedstatements of operations. The Company classifies its investments in marketable securities in current assets as the investments are available for use, if needed, incurrent operations. 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. 68 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 securities, andasset-backed securities. To date, the Company has not experienced any impairment losses on its investments.For the years ended December 31, 2018, 2017, and 2016, 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, 2018 or 2017.Property and equipmentProperty and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over theestimated useful lives of the assets, which is generally three to five years for machinery and equipment and purchased software and five years forfurniture and fixtures. Leasehold improvements, which are included in furniture and fixtures, are amortized using the straight-line method over theshorter of the lease term or seven years. Expenditures for repairs and maintenance are expensed as incurred, while renewals and betterments arecapitalized. Depreciation expense is charged to operations on a straight-line basis over the estimated useful lives of the assets. 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 Software as a Service (“SaaS”) subscriptionsolution when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and(iii) it is probable that the project will be completed and performed as intended. These capitalized costs include personnel and related expenses foremployees and costs of third-party contractors who are directly associated with and who devote time to internal-use software projects and, whenmaterial, interest costs incurred during the development. Capitalization of these costs ceases once the project is substantially complete and thesoftware is ready for its intended purpose. Costs incurred for significant upgrades and enhancements to the Company’s SaaS software solutionsare also capitalized. Costs incurred for training, maintenance and minor modifications or enhancements are expensed as incurred. Capitalizedsoftware development costs are amortized using the straight-line method over an estimated useful life of three years.During the years ended December 31, 2018, 2017, and 2016, the Company amortized $3.9 million, $2.7 million, and $1.8 million,respectively, of internal-use software development costs to subscription and support cost of revenue. At December 31, 2018 and 2017, theaccumulated amortization of capitalized internal-use software development costs was $9.5 million and $5.6 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 business generally being recorded at their estimatedfair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized asgoodwill.Transaction costs associated with business combinations are expensed as incurred and are included in general and administrativeexpenses in the consolidated statements of operations.69 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 2013 Acquisition and the Runbook Acquisition. The Company determines the appropriate useful life of itsintangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets are amortized on a straight-linebasis over their estimated useful lives, ranging from one to ten 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, 2018, 2017, and 2016.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.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.70 The Company has one reporting unit and it tests its goodwill for impairment annually, during the fourth quarter of the calendar year. AtDecember 31, 2018 and 2017, the Company used the quantitative approach to perform its annual goodwill impairment test. The Company’s fairvalue significantly exceeded the carrying value of its net assets and, accordingly, goodwill was not impaired.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 were a liabilityclassified under ASC 815-40, Contracts in Entity’s Own Equity, as they contained 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 was reduced. Thewarrants were measured at fair value each period with changes in fair value recorded in other income (expense), net in the consolidatedstatements of operations. In May 2017, warrants to purchase 499,999 shares of common stock were net exercised resulting in the issuance of428,033 shares of common stock and, accordingly, there will be no further changes in the fair value.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 approximated 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.At December 31, 2018 and 2017, the carrying values of cash equivalents, accounts receivable, accounts payable, and accrued expenses,approximate fair values due to the short-term nature of such instruments. Contingent consideration relating to the 2013 Acquisition (see Note 13) is recorded as a liability and is measured at fair value each period,based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation ofcontingent consideration uses assumptions management believes would be made by a market participant. Management assesses these estimateson an ongoing basis as additional data impacting the assumptions becomes available. Changes in the fair value of contingent consideration relatedto updated assumptions and estimates are recognized within general and administrative expenses in the consolidated statements of operations.The Company determined the fair value of the contingent consideration by discounting estimated future taxable income. The significant inputsused in the fair value measurement of contingent consideration are the timing and amount of taxable income in any given period and determiningan appropriate discount rate, which considers the risk associated with the forecasted taxable income. Significant changes in the estimated futuretaxable income and the periods in which they are generated would significantly impact the fair value of the contingent consideration liability.71 Warrants to purchase common stock were liability classified and were measured at fair value each period. The fair value was determinedusing a binomial lattice valuation model. The fair value included significant inputs not observable in the market, which represented a Level 3measurement within the fair value hierarchy. The valuation of common stock warrants used assumptions management believed would be made bya market participant. Management assessed these estimates on an ongoing basis as additional data impacting the assumptions became available.Changes in the fair value of the common stock warrant liability related to updated assumptions and estimates were 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 were 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 impacted the term of the warrants. 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, 2018, 2017, and 2016, no impairments were identifiedon those assets required to be measured at fair value on a non-recurring basis.Revenue recognitionRevenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the considerationthe Company expects to receive in exchange for those products or services. The Company enters into contracts that can include variouscombinations of subscription and support services and professional services, which are generally capable of being distinct and accounted for asseparate performance obligations. The Company’s agreements do not contain any refund provisions other than in the event of the Company’s non-performance or breach.The Company determines revenue recognition through the following steps: •Identification of the contract, or contracts, with a customer •Identification of the performance obligations in the contract •Determination of the transaction price •Allocation of the transaction price to the performance obligations in the contract •Recognition of revenue when, or as, the Company satisfies a performance obligationSubscription and support revenue – Customers pay subscription and support fees for access to the Company’s SaaS platform generallyfor a one-year period. In more limited cases, customers may pay for up to three years in advance. Fees are based on a number of factors,including the solutions subscribed for by the customer and the number of users having access to the solutions. Subscription services, which allowcustomers to use hosted software over the contract period without taking possession of the software, are considered distinct performanceobligations and are recognized ratably as the Company transfers control evenly over the contract period.Subscription and support revenue also includes software and related maintenance and support fees on legacy BlackLine solutions andRunbook Company B.V. (“Runbook”) software. Software licenses for legacy BlackLine solutions and Runbook software provide the customer with aright to use the software as it exists when made available to the customer. Customers may have purchased perpetual licenses or term basedlicenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.Software licenses are bundled with software maintenance and support, and the transaction price of the contract is allocated between thesoftware licenses and the software maintenance and support. Maintenance and support convey rights to new software and upgrades released overthe contract period and provide support, tools, and training to help customers deploy and use products more efficiently. Software licenses areconsidered distinct performance obligations and revenue is recognized at a point in time when control of the license has transferred and the licenseperiod commences. Maintenance and support are distinct performance obligations that are satisfied over time, and revenue is recognized ratablyover the contract period as customers simultaneously consume and receive benefits.Professional services revenue – Professional services consist of implementation and consulting services to assist the Company’scustomers as they deploy its solutions. These services are considered distinct performance obligations. Professional services do not result insignificant customization of the subscription service. The Company applies the72 practical expedient to recognize professional services revenue when it has the right to invoice based on time and materials incurred.Significant judgments – The Company’s contracts with customers often include promises to transfer multiple products and services.Determining whether products and services are considered distinct performance obligations that should be accounted for separately versustogether may require significant judgment. Judgment is also required to determine the stand alone selling price (“SSP”) for each distinctperformance obligation. The Company typically has more than one SSP for its SaaS solutions and professional services. Additionally,management has determined that there are no third-party offerings reasonably comparable to the Company’s solutions. Therefore, the Companydetermines the SSPs of subscriptions to the SaaS solutions and professional services based on numerous factors including the Company’soverall pricing objectives, geography, customer size and number of users, and discounting practices. The Company uses historical maintenancerenewal fees to estimate SSP for maintenance and support fees bundled with software licenses. The Company uses the residual method toestimate SSP of software licenses, because license pricing is highly variable and not sold separately from maintenance and support.Contract balances – Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an unbilledreceivable when revenue is recognized prior to invoicing, and deferred revenue when revenue is recognized subsequent to invoicing. The Companygenerally invoices customers annually at the beginning of each annual contract period. The Company records a receivable related to revenuerecognized for multi-year agreements as it has an unconditional right to invoice and receive payment in the future related to those services.Deferred revenue is comprised mainly of billings related to the Company’s SaaS solutions in advance of revenue being recognized. Deferredrevenue also includes payments for: professional services to be performed in the future; legacy BlackLine maintenance and support; Runbookmaintenance, support, license, and implementation; and other offerings for which the Company has been paid in advance and earns the revenuewhen the Company transfers control of the product or service.Changes in deferred revenue for the years ended December 31, 2018, 2017, and 2016 were primarily due to additional billings in the periods,partially offset by revenue recognized of $104.2 million, $78.2 million, and $52.9 million, respectively, that was previously included in the deferredrevenue balance at December 31, 2017, 2016, and 2015, respectively.The transaction price is generally determined by the stated fixed fees in the contract, excluding any related sales taxes. Transaction priceallocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not recognized”),which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not recognized revenuewas $285.0 million at December 31, 2018, of which the Company expects to recognize approximately 62% over the next 12 months and theremainder thereafter.Fees are generally due and payable upon receipt of invoice or within 30 days. None of the Company’s contracts includes a significantfinancing component.Assets recognized from the costs to obtain a contract with a customer – The Company recognizes an asset for the incremental andrecoverable costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be one year or longer. TheCompany has determined that certain sales incentive programs to the Company’s employees ("deferred customer contract acquisition costs") andits partners ("partner referral fees") meet the requirements to be capitalized. Deferred customer acquisition costs related to new revenue contractsand upsells are deferred and then amortized straight line over the expected period of benefit, which the Company has determined to be five years,based upon both the product turnover rate and estimated customer life. Partner referral fees are deferred and then amortized on a straight-linebasis over the related contractual period, as the fees for renewals are commensurate with fees incurred for the initial contract. Deferred customeracquisition costs and partner referral fees are included within other assets and prepaid expenses and other current assets, respectively, on theconsolidated balance sheets. There were no impairment losses in relation to the costs capitalized for the periods presented.Amortization expense related to the asset recognized from the costs to obtain a contract with a customer is included in sales and marketingexpenses in the consolidated statements of operations and was $23.6 million, $15.6 million, and $9.8 million for the years ended December 31,2018, 2017, and 2016, respectively.73 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, information technology costs and depreciation and amortization to cost of revenues. Costsassociated with providing professional services are expensed as incurred when the services are performed. In addition, subscription and supportcost of revenues includes amortization of acquired developed technology.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 $8.0 million, $7.7 million, and $4.2 million for the years ended December 31, 2018,2017, and 2016, 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, acquisition-related costs of business combinations, costs associated withthe secondary offering, and costs associated with the shelf offerings.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 is recognized on a straight-line basis over the periodduring which an employee is required to provide service in exchange for the award, usually the vesting period, which is generally four years. TheCompany recognizes the fair value of stock options which contain performance conditions based upon the probability of the performanceconditions being met, using the graded vesting method. On January 1, 2017, the Company changed its accounting policy to account for forfeitureswhen they occur rather than estimate a forfeiture rate.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.74 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. The Company determines expected volatility for the Employee Stock Purchase Plan(“ESPP”) based on the historical volatility of its common stock.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. The expected term for the Company’s ESPPrepresents the amount of time remaining in the 12-month offering period.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 the Black-Scholes option-pricing model for stockoptions granted: Year Ended December 31, 2018 2017 2016 Expected term (years) 6.1 6.2 6.3 Expected volatility 46.0% 47.0% 47.5%Risk free interest rate 2.8% 2.1% 1.4%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.75 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.Foreign currencyThe Company’s functional currency for its foreign subsidiaries is the U.S. Dollar (“USD”), with the exception of its BlackLine K.K. subsidiary,for which the Japanese Yen is the functional currency. The foreign exchange impacts of remeasuring the local currency of the foreign subsidiariesto the functional currency is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Monetaryassets and liabilities of foreign operations are remeasured at balance sheet date exchange rates, non-monetary assets and liabilities and equityare remeasured at the historical exchange rates, while results of operations are remeasured at average exchange rates in effect for the period.Foreign currency transaction gains (losses) totaled $(0.1) million, $0.6 million, and $(28,000) for the years ended December 31, 2018, 2017, and2016, respectively. The financial statements of BlackLine K.K. are translated to USD using balance sheet date exchange rates for monetaryassets and liabilities, historical rates of exchange for non-monetary assets and liabilities and equity, and average exchange rates in the period forrevenues and expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component ofstockholders’ equity in the consolidated balance sheets. Recent accounting pronouncementsRecently issued accounting pronouncements not yet adoptedIn February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance that significantly changes the accounting for leases.The guidance requires that a lessee recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use assetrepresenting its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make anaccounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it shouldrecognize lease expense for such leases generally on a straight-line basis over the lease term. For income statement purposes, the new guidanceretained a dual model, requiring leases to be classified as either operating or financing. Operating leases will result in straight-line expense whilefinance leases will result in a front-loaded expense pattern similar to existing capital lease guidance. For statement of cash flow purposes, the newguidance also retained the existing dual method, where cash payments for operating leases are reflected in cash flows from operating activitiesand principal and interest payments for finance leases are reflected in cash flows from financing activities and cash flows from operating activities,respectively. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.Although the Company is evaluating the impact of adopting this guidance on its consolidated financial statements, the Company expectsthat most of its operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the newguidance. The Company’s operating leases primarily include real estate (office space), equipment, and data centers. Capital leases are notmaterial. The Company will elect a number of practical expedients allowed under the guidance, including not reassessing lease identification, leaseclassification or initial direct costs for existing leases as of the adoption date. The Company will adopt the guidance as of January 1, 2019, andcomparative periods will not be adjusted. The Company is implementing changes to internal controls to enable the preparation of financialinformation. The Company expects the adoption of the new accounting guidance to have a material impact on its consolidated balance sheet.In June 2016, the FASB issued guidance which requires that financial assets measured at amortized cost 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 February 2018, the FASB issued an Accounting Standard Update (“ASU”) that provides companies with an option to reclassify strandedtax effects resulting from enactment of the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income to retainedearnings. The guidance will be effective for the Company beginning in the first quarter of 2019 with early adoption permitted and would be appliedeither in the period of adoption or retrospectively to76 each period (or periods) in which the effect of the change in the tax rate as a result of the Tax Act is recognized. The Company does not expectthe adoption of this ASU to have a material impact on its consolidated financial statements.In June 2018, the FASB issued guidance which expands the scope of Accounting Standards Codification Topic 718, Compensation—StockCompensation, to include share-based payments granted to non-employees in exchange for goods or services. Upon adoption, the fair value ofawards granted to non-employees will be determined as of the grant date, which will be recognized over the service period. Previous guidancerequired the awards to be remeasured at fair value periodically when determining the related expense. ASU 2018-07 is effective for annual reportingperiods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption.Upon adoption, the entity is required to measure the non-employee awards at fair value as of the adoption date. The Company does not expect theadoption of this ASU to have a material impact on its consolidated financial statements.In August 2018, the FASB issued guidance which aligns the accounting for implementation costs incurred in a hosting arrangement that is aservice contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order todetermine which costs to capitalize and recognize as an asset. The guidance will be effective for the Company for annual reporting periods, andinterim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurredafter the date of adoption or retrospectively to all arrangements. The Company does not expect the adoption of this ASU to have a material impacton its consolidated financial statements.In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements in Topic 820, Fair ValueMeasurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes toFinancial Statements, including the consideration of costs and benefits. The guidance will be effective for the Company for annual reportingperiods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses,the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative descriptionof measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year ofadoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company does not expectthe adoption of this ASU to have a material impact on its consolidated financial statements.Recently adopted accounting pronouncementsIn May 2014, the FASB issued guidance related to revenue from contracts with customers. Under this guidance, revenue is recognizedwhen promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received forthose goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flowsarising from contracts with customers. The Company adopted the new revenue guidance effective January 1, 2018 using the full retrospectivemethod to restate each prior reporting period presented. The most significant impact of the standard relates to the Company’s accounting for theincremental costs of obtaining a contract, such as sales commissions. Under the new revenue standard, commissions are recognized over anestimated period of benefit of five years rather than over the non-cancelable contract term. The standard also impacted the Company’s accountingfor on-premise solutions which includes software license, maintenance and support fees on Runbook solutions. Under the new guidance, theCompany recognizes software license revenue at the time of delivery rather than over the maintenance term. Revenue recognition related tosubscription, support, and professional services fees for access to the Company’s SaaS platform is substantially unchanged. Adoption of thestandard using the full retrospective method required the Company to restate certain previously reported results; see Note 3 – “Revenues” foradditional information regarding the impacts to previously reported results.In November 2016, the FASB issued guidance which requires that restricted cash and restricted cash equivalents be included with cash andcash equivalents when reconciling the beginning and ending total amounts shown on the statement of cash flows. The Company adopted thisguidance effective January 1, 2018, and all prior periods have been restated, as required by the new standard. The adoption of this standard didnot have a material impact on the Company’s consolidated financial statements.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 carrying77 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 Company adopted this standard effective January 1, 2018, and the adoption of thisstandard did not have a material impact on the Company’s consolidated financial statements.In May 2017, the FASB issued guidance to clarify which changes to the terms or conditions of a share-based payment award require anentity to apply modification accounting. Under this guidance an entity should account for the effects of a modification unless all the following aremet: 1) The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. Ifthe modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required toestimate the value immediately before and after the modification; 2) The vesting conditions of the modified award are the same as the vestingconditions of the original award immediately before the original award is modified; and 3) The classification of the modified award as an equityinstrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. TheCompany adopted this standard effective January 1, 2018, and will apply this guidance to modifications of stock-based compensationarrangements, if any, after this date. The adoption of this standard did not have a material impact on the Company’s consolidated financialstatements.Note 3—RevenuesThe Company adopted the new revenue standard effective January 1, 2018 using the full retrospective method to restate each priorreporting period presented.Impacts to previously reported resultsThe following table presents the effect of the adoption of ASC 606 on the Company’s consolidated balance sheet: December 31, 2017 As Reported Adjustments As Adjusted (in thousands) Accounts receivable, net$61,589 $329 $61,918 Prepaid expenses and other current assets$19,785 $(5,829) $13,956 Total current assets$193,954 $(5,500) $188,454 Other assets$1,391 $25,429 $26,820 Total assets$440,884 $19,929 $460,813 Deferred revenue$106,903 $(2,719) $104,184 Total current liabilities$137,039 $(2,719) $134,320 Deferred tax liabilities, net$1,328 $415 $1,743 Deferred revenue, noncurrent$912 $(444) $468 Total liabilities$146,256 $(2,748) $143,508 Accumulated deficit$(125,467) $22,677 $(102,790)Total stockholders' equity$294,628 $22,677 $317,305 Total liabilities and stockholders' equity$440,884 $19,929 $460,81378 The following table presents the effect of the adoption of ASC 606 on the Company’s consolidated statement of operations: Year Ended December 31, 2017 Year Ended December 31, 2016 As Reported Adjustments As Adjusted AsReported Adjustments As Adjusted (in thousands, except per share data) (in thousands, except per share data) Revenues Subscription and support$168,542 $(1,461) $167,081 $117,524 $4,917 $122,441 Professional services 8,489 33 8,522 5,599 (6) 5,593 Total revenues$177,031 $(1,428) $175,603 $123,123 $4,911 $128,034 Cost of revenues Subscription and support$33,631 $(101) $33,530 $25,900 $— $25,900 Total cost of revenues$41,486 $(101) $41,385 $30,211 $— $30,211 Gross profit$135,545 $(1,327) $134,218 $92,912 $4,911 $97,823 Operating expenses Sales and marketing$109,775 $(5,808) $103,967 $77,810 $(5,840) $71,970 General and administrative$36,956 $(170) $36,786 $27,911 $— $27,911 Total operating expenses$170,605 $(5,978) $164,627 $126,846 $(5,840) $121,006 Loss from operations$(35,060) $4,651 $(30,409) $(33,934) $10,751 $(23,183)Loss before income taxes$(37,494) $4,651 $(32,843) $(45,746) $10,751 $(34,995)Provision for (benefit from) income taxes$567 $(359) $208 $(6,587) $(2,071) $(8,658)Net loss$(38,061) $5,010 $(33,051) $(39,159) $12,822 $(26,337)Basic net loss per share$(0.73) $0.10 $(0.63) $(0.92) $0.30 $(0.62)Diluted net loss per share$(0.73) $0.10 $(0.63) $(0.92) $0.30 $(0.62) The following table presents the effect of the adoption of ASC 606 on the Company’s consolidated statement of cash flows: Year Ended December 31, 2017 Year Ended December 31, 2016 As Reported Adjustments As Adjusted AsReported Adjustments As Adjusted (in thousands) (in thousands) Net loss attributable to BlackLine, Inc.$(38,061) $5,010 $(33,051) $(39,159) $12,822 $(26,337)Deferred income taxes$66 $(338) $(272) $(7,432) $(2,035) $(9,467)Accounts receivable$(19,860) $(329) $(20,189) $(15,541) $— $(15,541)Prepaid expenses and other current assets$(3,104) $1,069 $(2,035) $(6,516) $1,302 $(5,214)Other assets$(342) $(6,834) $(7,176) $(201) $(7,233) $(7,434)Deferred revenue$25,082 $1,422 $26,504 $29,482 $(4,856) $24,626 There was no effect to net cash provided by (used in) operating, investing, or financing activities.Disaggregation of RevenuesThe Company disaggregates its revenue from contracts with customers by geographic location, as it believes it best depicts how the nature,amount, timing, and uncertainty of its revenues and cash flows are affected by economic factors.The following table sets forth the Company’s revenues by geographic region (in thousands): Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted United States$180,152 $141,499 $106,421 International 47,636 34,104 21,613 $227,788 $175,603 $128,034 79 No countries outside the United States represented 10% or more of total revenues. Note 4—Redeemable Non-Controlling InterestIn September 2018, the Company entered into an agreement with Japanese Cloud Computing and M30 LLC (the “Investors”) to engage inthe investment, organization, management, and operation of a Japanese subsidiary (“BlackLine K.K.”) of the Company that is focused on the saleof the Company's products in Japan. In October 2018, the Company initially contributed approximately $4.5 million in cash in exchange for 51% ofthe outstanding common stock of BlackLine K.K. As the Company controls a majority stake in BlackLine K.K., the entity will be consolidated.All of the common stock held by the Investors may be callable by the Company or puttable by the Investors upon certain contingent events.Should the call or put option be exercised, the redemption value would be determined based on a prescribed formula derived from the discreterevenues of BlackLine K.K. and the Company and may be settled, at the Company’s discretion, with Company stock or cash. As a result of theput right available to the redeemable non-controlling interest holders in the future, the redeemable non-controlling interests in BlackLine K.K. areclassified outside of permanent equity in the Company’s consolidated balance sheet at December 31, 2018, and the balance is reported at thegreater of the initial carrying amount adjusted for the redeemable non-controlling interests’ share of earnings, or its estimated redemption value.The resulting changes in the estimated redemption amount are recorded within retained earnings or, in the absence of retained earnings, additionalpaid-in-capital. The estimated redemption value of the call/put option embedded in the redeemable non-controlling interests was $0 at December31, 2018. The following table summarizes the activity in the redeemable non-controlling interests for the period indicated below: Balance at December 31, 2017 $— Investment by redeemable non-controlling interest 4,317 Net loss attributable to redeemable non-controlling interest (62)Foreign currency translation 132 Balance at December 31, 2018 $4,387 Note 5—Balance Sheet ComponentsInvestments in Marketable SecuritiesInvestments in marketable securities presented within current assets on the consolidated balance sheet consisted of the following: December 31, 2018 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair Value (in thousands) Marketable securities U.S. treasury securities $25,856 $— $(29) $25,827 Corporate bonds 32,030 — (60) 31,970 Commercial paper 28,599 — — 28,599 $86,485 $— $(89) $86,396 80 December 31, 2017 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses Fair Value (in thousands) Marketable securities U.S. treasury securities $21,454 $— $(19) $21,435 Corporate bonds 32,437 — (43) 32,394 Commercial paper 25,048 — — 25,048 Asset-backed securities 2,600 — (1) 2,599 $81,539 $— $(63) $81,476 During the years ended December 31, 2018, 2017, and 2016 there were no material realized gains or losses related to sales of marketablesecurities recognized in the Company’s consolidated statements of operations. Net gains and losses related to maturities of marketable securitiesthat were reclassified from accumulated other comprehensive loss to earnings in the consolidated statements of operations were $1.0 million forthe year ended December 31, 2018. Net gains and losses related to maturities of marketable securities that were reclassified from accumulatedother comprehensive loss to earnings in the consolidated statements of operations were not material for the years ended December 31, 2017 and2016. The Company’s marketable securities have a contractual maturity of less than 1 year. The amortized cost and fair values of marketablesecurities, by remaining contractual maturity, were as follows: December 31, 2018 AmortizedCost Fair Value (in thousands) Maturing within 1 year $86,485 $86,396 $86,485 $86,396 Prepaid Expenses and Other Current AssetsPrepaid expenses and other current assets consisted of the following (in thousands): December 31, December 31, 2018 2017 Partner referral fees $5,219 $7,945 Restricted cash — 400 Other prepaid expenses and other current assets 8,823 5,611 $14,042 $13,956 Other AssetsOther assets consisted of the following (in thousands): December 31, December 31, 2018 2017 Deferred customer contract acquisition costs $34,172 $25,338 Restricted cash 274 — Other assets 2,419 1,482 $36,865 $26,82081 Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consisted of the following (in thousands): December 31, December 31, 2018 2017 Accrued salaries and employee benefits $17,054 $11,945 Accrued income and other taxes payable 4,547 1,798 Short-term tenant improvement allowance 475 475 Partner referral fees — 2,991 Short-term portion of capital lease — 443 Other accrued expenses and current liabilities 2,629 3,222 $24,705 $20,874 Note 6 – Fair Value MeasurementsThe following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis by level, within thefair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant tothe fair value measurement (in thousands): December 31, 2018 Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $32,021 $— $— $32,021 Marketable securities U.S. treasury securities 25,827 — — 25,827 Corporate bonds — 31,970 — 31,970 Commercial paper — 28,599 — 28,599 Total assets $57,848 $60,569 $— $118,417 Liabilities Contingent consideration $— $— $6,316 $6,316 Total liabilities $— $— $6,316 $6,316 December 31, 2017 Level 1 Level 2 Level 3 Total Cash equivalents Money market funds $21,247 $— $— $21,247 Marketable securities U.S. treasury securities 21,435 — — 21,435 Corporate bonds — 32,394 — 32,394 Commercial paper — 25,048 — 25,048 Asset-backed securities — 2,599 — 2,599 Total assets $42,682 $60,041 $— $102,723 Liabilities Contingent consideration $— $— $5,866 $5,866 Total liabilities $— $— $5,866 $5,866 The following table summarizes the changes in the common stock warrant liability (in thousands): Year Ended December 31, 2017 2016 Beginning fair value $11,380 $5,500 Change in fair value 3,490 5,880 Exercise of stock warrants (14,870) — Ending fair value $— $11,380 82 In May 2017, warrants to purchase 499,999 shares of common stock were net exercised resulting in the issuance of 428,033 shares ofcommon stock and, accordingly, there will be no further changes in the fair value.The following table summarizes the changes in the contingent consideration liability (in thousands): Year Ended December 31, 2018 2017 2016 Beginning fair value $5,866 $5,238 $4,867 Change in fair value 450 628 371 Ending fair value $6,316 $5,866 $5,238 Note 7—Property and EquipmentProperty and equipment consisted of the following (in thousands): December 31, 2018 2017 Computers and equipment $6,598 $4,919 Purchased software 7,356 4,934 Furniture and fixtures 2,571 2,204 Leasehold improvements 10,077 9,075 Construction in progress — 180 26,602 21,312 Less: accumulated depreciation and amortization (13,066) (8,543) $13,536 $12,769 Depreciation and amortization expense related to property and equipment was $5.4 million, $4.0 million, and $3.1 million for the years endedDecember 31, 2018, 2017, and 2016, respectively. Software and construction in progress included assets held under capital lease of $1.6 million at December 31, 2018 and 2017, reduced byrelated accumulated amortization thereon of $1.5 million and $1.0 million, respectively. Note 8 – 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. The total purchase consideration was approximately $34.1 million which was paid in cash. The purchase consideration is subject to a finalworking capital adjustment, which has not yet been finalized. Any adjustment will be recorded in the consolidated statement of operations in theperiod of settlement. A portion of the purchase price totaling $3.1 million was paid into escrow for indemnification obligations relating to potentialbreach of representations and warranties of the sellers. Any amounts remaining in escrow after satisfaction of any resolved claims will be releasedfrom escrow. For the year ended December 31, 2016, acquisition-related costs incurred by the Company of approximately $1.6 million wereexpensed as incurred and are included in general and administrative expenses in the consolidated statements of operations.83 Note 9—Intangible Assets and GoodwillThe carrying value of intangible assets was as follows (in thousands): December 31, 2018 Gross Carrying Amount AccumulatedAmortization Net CarryingAmount Trade name$15,977 $(8,528) $7,449 Developed technology 42,558 (34,472) 8,086 Customer relationships 31,783 (19,533) 12,250 $90,318 $(62,533) $27,785 December 31, 2017 Gross Carrying Amount AccumulatedAmortization Net CarryingAmount Trade name$15,977 $(6,930) $9,047 Developed technology 42,558 (27,577) 14,981 Non-compete agreements 4,520 (3,882) 638 Customer relationships 31,783 (15,641) 16,142 $94,838 $(54,030) $40,808 The Company removed approximately $4.5 million of fully amortized non-compete agreements that were no longer in effect at December 31,2018. These assets were fully amortized and, accordingly, there was no impact to the Company’s consolidated financial statements.Amortization expense is included in the following functional statements of operations expense categories. Amortization expense was asfollows (in thousands): Year Ended December 31, 2018 2017 2016 Cost of revenues$6,863 $6,847 $6,368 Sales and marketing 3,887 3,872 3,605 General and administrative 2,273 2,591 2,532 $13,023 $13,310 $12,505 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, 2018 (in thousands): 2019$10,266 2020 6,173 2021 5,010 2022 2,686 2023 2,154 Thereafter 1,496 $27,785 There were no changes in the carrying amount of goodwill for the years ended December 31, 2018, 2017, and 2016.Note 10—Term LoanIn September 2013, the Company entered into a $25 million term loan agreement (the “Term Loan”). In March 2016 and August 2016, theCompany amended its credit facility to add an additional $5.0 million term loan (the “2016 Incremental Term Loan”) and to add an additional $30million term loan (the “2016 Acquisition Term Loan”), respectively. Both the 2016 Incremental Term Loan and the 2016 Acquisition Term Loan hadsimilar terms and conditions to the original Term Loan, and both were subject to prepayment penalties if the Company elected to repay the loansbefore the expiration date. In November 2016, the Company repaid in full all outstanding debt under the Company’s credit facility and terminatedthe agreement, as amended. In connection with the termination of the agreement, the84 Company paid a total of approximately $67.7 million, which included principal, accrued interest, paid in kind interest, and prepaymentpenalties. For the year ended December 31, 2016, upon the termination of the credit facility, accumulated paid in kind interest of $6.4 million wasrepaid and has been classified in cash flows from operating activities. 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 were exercisable at any time by the holder and expired upon the earlier of ten years from the issuance date or the sale ofthe Company. In May 2017, warrants to purchase 499,999 shares of common stock were net exercised, resulting in the issuance of 428,033shares of common stock and, accordingly, there will be no further changes in the fair value. Note 11—Income TaxesThe components of income (loss) before income taxes were as follows (in thousands): Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted United States $(27,289) $(30,690) $(38,355)International (415) (2,153) 3,360 $(27,704) $(32,843) $(34,995) The components of the total provision for (benefit from) income taxes were as follows (in thousands): Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Current Federal $— $— $— State 24 51 5 Foreign 1,061 450 840 Total current tax expense 1,085 501 845 Deferred Federal — — (8,680)State — — (395)Foreign (923) (293) (428)Total deferred tax provision (benefit) (923) (293) (9,503) Total provision for (benefit from) income taxes $162 $208 $(8,658) 85 A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2018,2017, and 2016 was as follows: Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Federal statutory income tax rate 21.0% 34.0% 34.0%State tax, net of federal benefit (0.1%) (0.1%) 0.7%Federal tax credits 7.1% 3.3% 1.6%Change in valuation allowance (63.1%) (13.6%) (5.0%)Common stock warrants — (3.7%) (5.8%)Foreign tax differential (2.3%) (2.4%) — Windfall tax benefits, net related to stock-based compensation 40.2% 15.3% — Effect of rate and other changes on federal deferred taxes, net due to enactment of Tax Cuts and Jobs Act — (30.0%) — Nondeductible officer compensation (1.8%) — — Nondeductible meals and entertainment (1.7%) — — Other 0.1% (3.4%) (0.8%) (0.6%) (0.6%) 24.7% In December 2017, the U.S. Congress passed, and the President signed, legislation commonly referred to as the Tax Cuts and Jobs Act(“the Tax Act”), which contains many significant changes to the U.S. tax laws, including reducing the U.S. federal corporate tax rate from 34% to21% and creating a territorial tax system with a one-time mandatory tax on previously-deferred foreign earnings of U.S. subsidiaries. As theCompany has a full valuation allowance against its U.S. deferred tax assets, the revaluation of its net deferred tax assets resulting from thereduction in the U.S federal corporate income tax rate did not impact the Company’s effective tax rate. In addition, due to cumulative foreigndeficits, no liability for foreign earnings and profits has been established. At December 31, 2018, the Company completed its analysis of the TaxAct with no impact to its consolidated financial statements. Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands): December 31, December 31, 2018 2017 *As Adjusted Deferred tax assets Net operating loss carryforwards $43,106 $29,607 Business credits 8,487 5,197 Stock-based compensation 6,321 3,961 Accrued expenses and other current liabilities 2,910 1,462 Other 1,963 1,389 Total deferred tax assets 62,787 41,616 Less: valuation allowance (45,579) (23,904)Deferred tax assets, net of valuation allowance 17,208 17,712 Deferred tax liabilities Intangible assets (8,735) (11,287)Prepaid expenses (8,400) (6,376)Property and equipment (802) (1,589)Other — (112)Total deferred tax liabilities (17,937) (19,364)Net deferred taxes $(729) $(1,652) ASC 740 requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be recorded as an asset tothe extent that management assesses that realization is "more likely than not." A valuation allowance is recorded when it is more likely than notthat some of the deferred tax assets will not be realized. Realization of future tax benefits is dependent on the Company’s ability to generatesufficient taxable income within the carryforward period. For financial reporting purposes, the Company has incurred losses for each of the pastthree years. Based on86 available objective evidence, including the Company’s history of losses, management believes it is more likely than not that the net deferred taxassets will not be fully realizable. Accordingly, the Company provided a valuation allowance against certain deferred tax assets. The net deferredtax liability position at December 31, 2018 was related to a foreign tax jurisdiction of the Company.The changes in the valuation allowance were as follows (in thousands). Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Valuation allowance, at beginning of year $23,904 $2,674 $887 Increase in valuation allowance recorded through earnings 21,675 7,332 1,787 Increase in valuation allowance as result of adoption of ASU 2016-09 — 13,898 — Valuation allowance, at end of year $45,579 $23,904 $2,674 The Company did not provide for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreignsubsidiaries as they are considered indefinitely reinvested outside the United States. At December 31, 2018 and 2017, the amount of temporarydifferences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes have not been provided isimmaterial to these consolidated financial statements. At December 31, 2018, the Company had consolidated federal and state net operating loss carryforwards available to offset future taxableincome of approximately $172.7 million and $94.1 million, respectively. The federal losses will begin to expire in 2033, and the state losses willbegin to expire between 2023 and 2033, depending on the jurisdiction. The Company has federal research and development credits and foreign taxcredits of $3.3 million and $2.0 million, respectively, which begin to expire in 2033 and 2023, respectively. The Company has state research anddevelopment credits and enterprise zone credits of $3.5 million and $0.6 million, respectively, which are indefinite in expiration and begin to expirein 2023, respectively. Pursuant to Internal Revenue Code Section 382, use of the Company’s net operating loss carryforwards may be limited ifthe Company experiences a cumulative change in ownership of more than 50% over a three-year period. The following is a rollforward of the Company’s total gross unrecognized tax benefits (in thousands): Year Ended December 31, 2018 2017 2016 Beginning gross unrecognized tax benefits $672 $382 $278 Increases related to prior year tax positions 130 38 — Increases related to current year tax positions 421 252 104 Ending gross unrecognized tax benefits $1,223 $672 $382At December 31, 2018, the realization of unrecognized tax benefits were not expected to impact the effective rate due to a full valuationallowance on federal and state deferred taxes. The Company has not recorded any interest or penalties in its provision for (benefit from) incometaxes for the years ended December 31, 2018, 2017, and 2016 and no such amounts have been accrued at December 31, 2018 and 2017. 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 2016 and 2017 remain subject to examination for federal purposes. Generally, state and foreigntax authorities may examine the Company’s tax returns for four years and five years, respectively, from the date an income tax return is filed.However, the taxing authorities may continue to examine 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 Company does not anticipate material changes in the total amount or composition of its unrecognized tax benefits within 12 months ofthe reporting date. 87 Note 12—Net Loss per ShareThe following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share amounts): Year Ended December 31, 2018 2017 2016 *As Adjusted *As Adjusted Numerator: Net loss attributable to BlackLine, Inc. $(27,804) $(33,051) $(26,337)Denominator: Weighted average shares 53,912 52,161 42,497 Add: Dilutive effect of securities — — — Shares used to calculate diluted net loss per share 53,912 52,161 42,497 Basic net loss per share attributable to BlackLine, Inc. $(0.52) $(0.63) $(0.62)Diluted net loss per share attributable to BlackLine, Inc. $(0.52) $(0.63) $(0.62) The following potentially dilutive shares were excluded from the calculation of diluted net loss per share attributable to common stockholdersbecause they were anti-dilutive: Year Ended December 31, 2018 2017 2016 Stock options with service-only vesting conditions 3,820 5,019 5,874 Stock options with performance conditions 683 683 683 Restricted stock units 1,300 2 — Common stock warrants — — 500 Total shares excluded from net loss per share 5,803 5,704 7,057 Note 13—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 $6.3 million and $5.9 million atDecember 31, 2018 and 2017, respectively. See Note 2 for additional information regarding the valuation of the contingent consideration.88 Note 14—Commitments and ContingenciesOperating leases—The Company has various non-cancelable operating leases for its corporate and international offices, as well as non-cancelable data center and equipment leases. These leases expire at various times through 2024. Certain lease agreements contain renewaloptions, rent abatement and escalation clauses. The Company recognizes rent expense on a straight-line basis over the lease term, commencingwhen the Company takes possession of the property. Certain of the Company’s office leases entitle the Company to receive a tenant allowancefrom the landlord. The Company records tenant allowances as a deferred rent credit, which the Company amortizes on a straight-line basis, as areduction of rent expense, over the term of the underlying lease. Total rent expense under the operating leases related to offices wasapproximately $4.2 million, $3.4 million, and $2.9 million for the years ended December 31, 2018, 2017, and 2016, respectively. Total rent expenseunder the operating leases related to data center and equipment leases was approximately $3.7 million, $3.2 million, and $1.5 million for the yearsended December 31, 2018, 2017, and 2016, respectively.Future minimum lease payments under non-cancelable operating leases at December 31, 2018 was (in thousands): 2019$7,059 2020 5,307 2021 3,786 2022 2,586 2023 2,638 Thereafter 237 $21,613Purchase obligations— At December 31, 2018, the Company had $5.2 million of non-cancelable purchase obligations primarily related tofuture sales and user conferences and software agreements.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. At December 31, 2018 and 2017, 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 15—CapitalizationAt December 31, 2018, the authorized capital stock of the Company consisted of 500 million shares of common stock and 50 million sharesof preferred stock. No shares of preferred stock were issued and outstanding at December 31, 2018. The board of directors can determine thevoting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of the preferred stock.On January 14, 2016, the board of directors approved the retirement of 47,000 shares of treasury stock.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 1,290,00089 shares at an initial offering price of $17.00 per share. The Company received proceeds from the offering of approximately $151.9 million afterdeducting underwriting discounts and commissions and other offering expenses. Note 16—Equity Awards2014 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 and restricted stock units toemployees, directors and consultants under the 2016 Plan. The aggregate number of shares available under the 2016 Plan and the number ofshares subject to outstanding options automatically adjusts for any changes in the Company’s outstanding common stock by reason of anyrecapitalization, spin-off, reorganization, reclassification, stock dividend, stock split, reverse stock split, or similar transaction. Stock options andrestricted stock units generally vest over four years and have contractual terms of ten years.At December 31, 2018, 9.1 million 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 awards that contain service-only vesting conditions was asfollows: Shares Weighted-AverageExercise Price Weighted-AverageRemainingContractual Term AggregateIntrinsic Value (in thousands) (in years) (in thousands) Outstanding at December 31, 2017 5,019 $13.90 7.5 $95,353 Granted 845 $42.06 Exercised (1,788) $8.39 Forfeited/canceled (256) $26.64 Outstanding at December 31, 2018 3,820 $21.85 7.5 $75,287 Exercisable at December 31, 2018 1,729 $13.11 6.4 $48,136 The weighted average grant date fair value per share of options granted during the years ended December 31, 2018, 2017, and 2016 thatcontain service only vesting conditions were $20.15, $15.20, and $6.78, respectively. The aggregate intrinsic value of options exercised thatcontain service only vesting conditions during the years ended December 31, 2018, 2017, and 2016 were $66.7 million, $31.4 million, and $4.8million, respectively. Cash received from the exercise of stock options for the years ended December 31, 2018, 2017, and 2016 was $14.0 million,$10.4 million, and $2.9 million, respectively.Unrecognized compensation expense relating to stock options that contain service only vesting conditions was $23.1 million atDecember 31, 2018, which is expected to be recognized over a weighted-average period of 2.8 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 a cumulative annual recurring revenue target through 2020 are achieved. The cash flow performance targets for each year aredetermined concurrently with the annual budget process and because each yearly target has not yet been set, no grant date for the options hasbeen established. At December 31, 2018, the Company has determined that the achievement of the performance targets is not probable and,accordingly, no stock-based compensation expense has90 been recorded for these awards. To the extent that the awards become probable of vesting prior to the grant date, the amount of compensationcost to be 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 grantdate has been established. Accordingly, stock-based compensation cost, if any, to be recognized will depend on the value of the stock optionswhen all performance conditions have been set and whether the performance conditions are probable of being achieved. Restricted stock unitsThe following table summarizes activity for restricted stock units: Weighted-Average Restricted Grant Date Stock Units Fair Value (in thousands) Nonvested at December 31, 2017 2 $34.12 Granted 1,372 $42.38 Vested (2) $34.46 Forfeited/canceled (72) $44.09 Nonvested at December 31, 2018 1,300 $42.29At December 31, 2018, the intrinsic value of nonvested restricted stock units was $53.2 million. At December 31, 2018, total unrecognizedcompensation cost related to nonvested restricted stock units was $44.9 million and was expected to be recognized over a weighted-averageperiod of 3.3 years.Employee Stock Purchase PlanUnder the Company’s 2018 Employee Stock Purchase Plan (“ESPP”) eligible employees are granted the right to purchase shares at thelower of 85% of the fair value of the stock at the time of grant or 85% of the fair value at the time of exercise. The right to purchase shares isgranted twice yearly for six month offering periods in May and November and exercisable on or about the succeeding November and May,respectively, of each year. Under the ESPP, 1.5 million shares remained available for issuance, at December 31, 2018. The Company recognizedstock-based compensation expense related to the ESPP of $0.2 million for the year ended December 31, 2018.The fair value of employee stock purchase plan shares granted was estimated using the Black-Scholes option pricing model with thefollowing weighted-average assumptions: Year EndedDecember 31, 2018 Risk-free interest rate 2.6%Expected term (in years) 0.7 Volatility 42.9%At December 31, 2018, total unrecognized compensation cost related to the 2018 Employee Stock Purchase Plan was $1.6 million and wasexpected to be recognized over a weighted-average period of 0.7 years.Stock-based compensation expenseStock-based compensation expense recorded in the Company’s consolidated statements of operations was as follows (in thousands): Year Ended December 31, 2018 2017 2016 Cost of revenues $3,265 $1,149 $715 Sales and marketing 8,674 10,811 2,490 Research and development 2,570 767 809 General and administrative 6,386 3,317 2,512 $20,895 $16,044 $6,52691 Stock-based compensation capitalized as an asset was $0.4 million, $0.1 million, and $0.1 million in the years ended December 31, 2018,2017, and 2016, respectively. The Company recorded $0.2 million of foreign tax benefits attributable to equity awards for the year ended December 31, 2018. For theyears ended December 31, 2017 and 2016, no additional tax benefit attributable to equity awards was recorded due to the full valuation allowanceprovided on the Company’s U.S. net deferred tax assets. On July 21, 2017, the Company modified the vesting terms of options to purchase 219,000 shares of common stock to a time-basedvesting schedule, for eight employees. Prior to the modification, the options vested solely upon a change in control of the Company. The Companyrecorded $6.6 million of stock-based compensation in the year ended December 31, 2017 related to the modification. Note 17—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 Planrecorded in the Company’s consolidated statements of operations totaled $2.9 million, $2.2 million, and $2.3 million for the years ended December31, 2018, 2017, and 2016, respectively.Note 18—Related-Party TransactionsThe Company had no material related-party transactions during the years ended December 31, 2018, 2017, and 2016. Note 19—Geographic Information The following table sets forth the Company’s long-lived assets, which consist of property and equipment, net by geographic region (inthousands): Year Ended December 31, 2018 2017 United States$12,407 $12,210 International 1,129 559 $13,536 $12,769 Note 20—Subsequent EventsOn February 25, 2019, the Compensation Committee of the Board of Directors of BlackLine, Inc. approved a stock option grant to anemployee totaling 0.1 million shares. Each stock option entitles the recipient to receive one share of common stock upon exercise of the vestedaward and payment of the exercise price. The stock options will vest as to one-fourth of the total number of options awarded on the firstanniversary of February 20, 2019 and quarterly thereafter for 12 consecutive quarters. On February 25, 2019, the Compensation Committee of the Board of Directors of BlackLine, Inc. approved restricted stock unit grants toemployees totaling 0.2 million shares. Each restricted stock unit entitles the recipient to receive one share of common stock upon vesting of theaward. The vast majority of the restricted stock units will vest as to one-fourth of the total number of units awarded on the first anniversary ofFebruary 20, 2019 and quarterly thereafter for 12 consecutive quarters.92 Note 21—Unaudited Quarterly DataThe following table sets forth unaudited quarterly consolidated statements of operations data for each of the quarters in the years endedDecember 31, 2018 and 2017. The Company has prepared the unaudited quarterly consolidated statements of operations data on a basisconsistent with the audited annual consolidated financial statements. In the opinion of management, the financial information in this table reflectsall adjustments, consisting of normal and recurring adjustments, necessary for the fair statement of this data. Quarter Ended 2018 2017 December31, September30, June 30, March 31, December31, September30, June 30, March 31, *AsAdjusted *AsAdjusted *AsAdjusted *AsAdjusted Revenues$62,316 $58,734 $55,454 $51,284 $50,017 $45,424 $41,981 $38,181 Gross profit$48,431 $45,217 $43,588 $39,678 $39,070 $34,553 $31,624 $28,971 Net loss$(7,794) $(4,460) $(8,457) $(7,155) $(4,166) $(12,074) $(9,126) $(7,685)Net loss attributable toredeemable non-controllinginterest$(62) $— $— $— $— $— $— $— Net loss attributable toBlackLine, Inc.$(7,732) $(4,460) $(8,457) $(7,155) $(4,166) $(12,074) $(9,126) $(7,685)Basic net loss per shareattributable to BlackLine, Inc.$(0.14) $(0.08) $(0.16) $(0.13) $(0.08) $(0.23) $(0.18) $(0.15)Diluted net loss per shareattributable to BlackLine, Inc.$(0.14) $(0.08) $(0.16) $(0.13) $(0.08) $(0.23) $(0.18) $(0.15) 93 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 Securities Exchange Act, as amended, or “theExchange Act” means controls and other procedures of a company that are designed to provide reasonable assurance that information required tobe disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, withinthe 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 at December 31, 2018, the last day of the period covered by this Annual Report. Based on this evaluation,our principal executive officer and principal financial officer have concluded that, at December 31, 2018, our disclosure controls and procedureswere effective at the reasonable assurance level.Limitations on the Effectiveness of Controls and ProceduresIn designing and evaluating our disclosure controls and procedures and internal control over financial reporting, management recognizes thatany controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving thedesired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect thefact that there are resource constraints and our management is required to apply judgment in evaluating the benefits of possible controls andprocedures relative to their costs. The design of any disclosure controls and procedures and internal control over financial reporting also is basedin part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving itsstated goals under all potential future conditions.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in"Internal Control - Integrated Framework" (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based onthis evaluation, management concluded that the Company's internal control over financial reporting was effective at December 31, 2018. Theeffectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has been audited by PricewaterhouseCoopersLLP, an independent registered public accounting firm, as stated in their report which appears herein.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d)and 15d-15(d) under the Exchange Act that occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting. Item 9B.Other InformationNone.94 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 2019 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, 2018, and is incorporatedherein by reference. Item 11.Executive CompensationThe information required by this item will be included in our Definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2018, 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 2019 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2018, 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 2019 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2018, and is incorporated herein by reference. Item 14.Principal Accounting Fees and ServicesThe information required by this item will be included in our Definitive Proxy Statement for the 2019 Annual Meeting of Stockholders to befiled with the SEC within 120 days of the fiscal year ended December 31, 2018, 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 2019 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2018 is notdeemed “filed” as part of this Annual Report on Form 10-K.95 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 accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report onForm 10-K.Exhibit Index Incorporated by ReferenceExhibit NumberDescriptionFormFile No.ExhibitFiling Date2.1Agreement and Plan of Merger, by and among SLS Breeze Holdings,Inc., SLS Breeze Intermediate Holdings, Inc., SLS Breeze MergerSub, Inc. and BlackLine Systems, Inc., dated as of August 9, 2013S-1333-2138992.1September 30, 2016 3.1Certificate of Amendment to the Second Amended and RestatedCertificate of Incorporation of the Registrant, effecting a one-for-fivereverse stock split.S-1/A333-2138993.2October 17, 2016 3.2Amended and Restated Certificate of Incorporation of the Registrant.10-Q001-379243.2December 12, 2016 3.3Amended and Restated Bylaws of the Registrant.10-Q001-379243.3December 12, 2016 4.1Specimen Common Stock Certificate of the Company.S-1333-2138994.1September 30, 2016 4.2Amended and Restated Stockholders’ Agreement, by and among theRegistrant, Silver Lake Sumeru, Iconiq, Therese Tucker and MarioSpanicciati.10-Q001-379244.2December 12, 2016 4.3Amended and Restated Registration Rights Agreement, by andamong the Registrant, Silver Lake Sumeru, Iconiq, Therese Tuckerand Mario Spanicciati.10-Q001-379244.3December 12, 2016 4.4Warrant to Purchase Stock held by Special Value ContinuationPartners, LP, dated as of September 25, 2013.S-1333-2138994.2September 30, 2016 4.5Warrant to Purchase Stock held by Tennenbaum Opportunities FundVI, LLC, dated as of September 25, 2013.S-1333-2138994.3September 30, 2016 4.6Warrant to Purchase Stock held by Tennenbaum Senior Loan FundII, LP, dated as of September 25, 2013.S-1333-2138994.4September 30, 2016 4.7Warrant to Purchase Stock held by Tennenbaum Senior Loan SPVIII, LLC, dated as of September 25, 2013.S-1333-2138994.5September 30, 201696 Incorporated by ReferenceExhibit NumberDescriptionFormFile No.ExhibitFiling Date 4.8Warrant to Purchase Stock held by Tennenbaum Senior Loan FundIV-B, LP, dated as of September 25, 2013.S-1333-2138994.6September 30, 2016 4.9Subscription Agreement, by and between the Company and Iconiq,dated as of October 21, 2014.S-1333-2138994.7September 30, 2016 4.10Form of Senior Indenture.S-3333- 2215004.5November 13, 2017 4.11Form of Subordinated Indenture.S-3333- 2215004.6November 13, 2017 10.1*Software Development Cooperation Agreement, by and between theCompany and SAP AG, effective as of October 1, 2013.S-1333-21389910.1September 30, 2016 10.2Amendment No. 1 to Software Development Cooperation Agreement,by and between the Company and SAP AG, effective as of October31, 2018 10.3+2014 Equity Incentive Plan and form of equity agreementsthereunder.S-1333-21389910.6September 30, 2016 10.4+Amendment No. 1 to the 2014 Equity Incentive Plan.S-1333-21389910.7September 30, 2016 10.5+Amendment No. 2 to the 2014 Equity Incentive Plan.S-1333-21389910.8September 30, 2016 10.6+Amendment No. 3 to the 2014 Equity Incentive Plan.S-1333-21389910.9September 30, 2016 10.7+2016 Equity Incentive Plan and the form of equity award agreementsthereunder.S-1/A333-21389910.10October 17, 2016 10.8+Employee Incentive Compensation Plan of the Company.S-1333-21389910.11September 30, 2016 10.9+2018 Employee Stock Purchase Plan.10-Q001-3792410.2August 8, 2018 10.10+Form of Change of Control and Severance Policy.S-1333-21389910.13September 30, 2016 10.11+Executive Employment Agreement, by and between the Registrantand Therese Tucker, effective as of January 1, 2016.S-1333-21389910.14September 30, 2016 10.12+Employment Offer Letter, by and between the Company and KaroleMorgan-Prager, dated as of May 4, 2015.S-1333-21389910.16September 30, 2016 10.13+Confirmatory Offer Letter, by and between the Registrant and KaroleMorgan-Prager, dated as of September 29, 2016.S-1333-21389910.18September 30, 2016 10.14+Employment Offer Letter, by and between the Company and MarkPartin, dated as of December 25, 2014.S-1333-21389910.19September 30, 2016 10.15+Confirmatory Offer Letter, by and between the Registrant and MarkPartin, dated as of September 29, 2016.S-1333-21389910.20September 30, 2016 10.16+Confirmatory Offer Letter, by and between the Registrant and ChrisMurphy, dated as of September 29, 2016.S-1333-21389910.21September 30, 201697 Incorporated by ReferenceExhibit NumberDescriptionFormFile No.ExhibitFiling Date 10.17+Transition Agreement and Release, by and between the Registrantand Chris Murphy, dated June 18, 2018. 10-Q001-3792410.1August 8, 2018 10.18+**Employment Offer Letter, by and between the Registrant and MarcHuffman, dated as of January 8, 2018.10-Q001-3792410.18May 9, 2018 10.19+Form of Indemnification Agreement between the Registrant and eachof its directors and executive officers.S-1333-21389910.22September 30, 2016 10.20Restrictive Covenant Agreement, by and between the Company andTherese Tucker, dated as of August 8, 2013.S-1333-21389910.23September 30, 2016 10.21Restrictive Covenant Agreement, by and between the Company andMario Spanicciati, dated as of August 9, 2013.S-1333-21389910.24September 30, 2016 10.22*Office Lease, by and between the Company and Douglas Emmet2008, LLC, dated November 22, 2010.S-1333-21389910.25September 30, 2016 10.23*First Amendment to Office Lease, by and between the Company andDouglas Emmett 2008, LLC, dated August 14, 2012.S-1333-21389910.26September 30, 2016 10.24*Second Amendment to Office Lease, by and between the Companyand Douglas Emmett 2008, LLC, dated December 26, 2013.S-1333-21389910.27September 30, 2016 10.25*Third Amendment to Office Lease, by and between the Companyand Douglas Emmett 2008, LLC, dated June24, 2014.S-1333-21389910.28September 30, 2016 10.26Fourth Amendment to Office Lease, by and between the Companyand Douglas Emmett 2008, LLC, dated January 29, 2015.S-1333-21389910.29September 30, 2016 10.27Fifth Amendment to Office Lease, by and between the Company andDouglas Emmett 2008, LLC, dated October 6, 2016.S-1/A333-21798110.26May 22, 2017 10.28Sixth Amendment to Office Lease, by and between the Companyand Douglas Emmett 2008, LLC, dated May 10, 2017.S-1/A333-21798110.27May 22, 2017 10.29Seventh Amendment to Office Lease, by and between the Companyand Douglas Emmett 2008, LLC, dated May 18, 2017.S-1/A333-21798110.28May 22, 2017 21.1**List of subsidiaries of the Company. 23.1**Consent of Independent Registered Public Accounting Firm. 98 Incorporated by ReferenceExhibit NumberDescriptionFormFile No.ExhibitFiling Date24.1**Power of Attorney (included in signature pages hereto). 31.1**Certification of Chief Executive Officer pursuant to Exchange ActRules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002. 31.2**Certification of Chief Financial Officer pursuant to Exchange ActRules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002. 32.1†Certifications of Chief Executive Officer and Chief Financial Officerpursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section906 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 theSecurities and 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 theSecurities and Exchange Commission and are not to be incorporated by reference into any filing of BlackLine, Inc. under the Securities Actof 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report onForm 10-K, irrespective of any general incorporation language contained in such filing.Item 16.Form 10-K SummaryNot applicable.99 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 February 28, 2019. 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) February 28, 2019Therese Tucker /s/ Mark Partin Chief Financial Officer(Principal Financial Officer) February 28, 2019Mark Partin /s/ Patrick Villanova VP, Corporate Controller(Principal Accounting Officer) February 28, 2019Patrick Villanova /s/ Jason Babcoke Director February 28, 2019Jason Babcoke /s/ John Brennan Director February 28, 2019John Brennan /s/ William Griffith Director February 28, 2019William Griffith /s/ Owen Ryan Director February 28, 2019Owen Ryan /s/ Graham Smith Director February 28, 2019Graham Smith /s/ Mario Spanicciati Director February 28, 2019Mario Spanicciati /s/ Kevin Thompson Director February 28, 2019Kevin Thompson /s/ Thomas Unterman Director February 28, 2019Thomas Unterman 100EXHIBIT 21.1LIST OF SUBSIDIARIES OF THE COMPANY Name of Subsidiary Jurisdiction of IncorporationBlackLine Systems, Inc. CaliforniaBlackLine Intermediate, Inc. DelawareBlackLine CV, LLC DelawareBlackLine Coop, LLC DelawareRunbook Inc. DelawareBlackLine Systems Pty Ltd. AustraliaBlackLine Systems, Ltd. CanadaBlackLine Systems S.a r.l. FranceBlackLine Systems Germany Gmb H GermanyBlackLine C.V. NetherlandsBlackLine Coöperatief U.A. NetherlandsRunbook Company BV NetherlandsRunbook IP BV NetherlandsBlackLine International BV NetherlandsBlackLine Sp. z o.o. PolandBlackLine Systems SRL RomaniaBlackLine Systems Pte. Ltd. SingaporeBlackLine Systems Limited United KingdomBlackLine K.K. Japan Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-226818, 333-223528, 333-217985 and333-214309) and Form S-3 (No. 333-221500) of BlackLine, Inc. of our report dated February 28, 2019 relating to the financial statements and theeffectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPLos Angeles, CaliforniaFebruary 28, 2019 Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TOEXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) 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 (d) 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; and 5. 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: February 28, 2019 BLACKLINE, INC. By: /s/ Therese TuckerName: Therese TuckerTitle: Chief Executive Officer(Principal Executive Officer) Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TOEXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),AS ADOPTED PURSUANT TOSECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) 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 (d) 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; and 5. 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: February 28, 2019 BLACKLINE, INC. By: /s/ Mark PartinName: Mark PartinTitle: Chief Financial Officer(Principal Financial Officer) Exhibit 32.1CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL 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, 2018 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: February 28, 2019 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, 2018 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: February 28, 2019 By: /s/ Mark Partin Name: Mark Partin Title: Chief Financial Officer (Principal Financial Officer) 

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