UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-K
______________________________________
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
For the transition period from to
Commission file number: 001-37924
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BlackLine, Inc.
(Exact name of Registrant as specified in its charter)
______________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
46-3354276
(I.R.S. Employer
Identification Number)
21300 Victory Boulevard, 12th Floor
Woodland Hills, CA 91367
(Address of principal executive offices, including zip code)
(818) 223-9008
(Registrant’s telephone number, including area code)
______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
BL
Name of each exchange on which registered
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 Act. 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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”
“accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
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 accounting standards provided pursuant to Section 13(a) of
the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15
U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period
pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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 30, 2023 as reported by the Nasdaq Global Select
Market on such date was $3.034 billion. Shares of the registrant’s common stock held by each executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be
deemed to be affiliates. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.
At February 15, 2024, 61,520,108 shares of the registrant’s common stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions 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 the registrant’s Annual Meeting of Stockholders to be held
in 2024, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year ended December 31, 2023.
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BLACKLINE, INC.
2023 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page No.
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART III
Exhibit and Financial Statement Schedules
Form 10-K Summary
Signatures
PART IV
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and
uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “would,” “continue,” “ongoing” or the negative of these terms or other
comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking
statements, including, but not limited to, statements regarding future financial and operational performance; statements concerning growth
strategies including acquisitions, extension of distribution channels and strategic relationships, product innovation, international expansion,
customer growth and expansion, customer service initiatives, expectations regarding our acquisitions, expectations regarding contract size
and increased focus on strategic products, expectations for hiring new talent; our ability to accurately forecast revenue and appropriately plan
expenses and investments; the demand for and benefits from the use of our current and future solutions; market acceptance of our solutions;
the impact of the macroeconomic environment on our business; and changes in the competitive environment in our industry and the markets
in which we operate and our liquidity and capital resources. These statements are based upon our historical performance and our current
plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. Forward-looking
statements are based on information available at the time those statements are made and/or management’s good faith beliefs and
assumptions as of that time with respect to future events and are subject to risks and uncertainty. If any of these risks or uncertainties
materialize or if any assumptions prove incorrect, actual performance or results may differ materially from those expressed in or suggested
by the forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks,
uncertainty, and assumptions that are difficult to predict, including those identified below, under “Part II-Other Information, Item 1A. Risk
Factors” and elsewhere herein. Forward-looking statements should not be read as a guarantee of future performance or results, and you
should not place undue reliance on such statements. Furthermore, we undertake no obligation to revise or update any forward-looking
statements for any reason, except as required by applicable law.
Unless the context otherwise requires, the terms “BlackLine, Inc.,” “BlackLine,” “the Company,” “we,” “us,” and “our” in this Annual
Report on Form 10-K refer to the consolidated operations of BlackLine, Inc. and its consolidated subsidiaries as a whole.
Item 1. Business
Overview
We have created comprehensive cloud-based solutions designed to transform and modernize accounting and finance operations for
midsize and enterprise organizations in all industries globally. Our secure, scalable solutions transform critical processes, including financial
close, intercompany accounting, invoice-to-cash, and consolidation. By introducing software that unifies critical data and enables process
orchestration and automation, we empower accounting and finance professionals to improve the integrity of their financial reporting, reduce
time spent on manual work, accelerate cash flows, and redeploy resources to focus on analysis and business partnership. With the recent
acceleration of AI innovation and applications in the broader economy, we expect to further explore and possibly leverage such new and
innovative technologies for optimized workflow, efficiencies, and value creation for our customers.
The integrity of an organization’s financial reports are rooted in critical accounting and finance processes that are often manual,
inefficient and cumbersome and which may result in accounting errors and restatements, as well as significant deficiencies and material
weaknesses. In addition, these manual accounting processes are unsuited for the increasing regulatory complexity and transaction volumes
encountered by many businesses today. Traditional enterprise resource planning (“ERP”) systems do not generally provide effective
solutions for processes handled outside of an organization’s general ledger, such as balance sheet substantiation, cash application, and
intercompany transaction accounting. Many organizations also use multiple ERPs and other financial systems without a platform to efficiently
integrate their data and processes. We are offering next-generation cloud-based solutions that address even more challenges for accounting
and finance professionals by automating and streamlining accounting and finance operations in a manner that complements and supports
traditional ERP systems. We believe our customers benefit from cost savings through improvements in process efficiency, accuracy, and staff
productivity, in addition to maximizing cash flows and driving a faster record-to-report process.
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Our mission is to inspire, power, and guide digital finance transformation by delivering a platform of solutions for the office of the Chief
Financial Officer. Our approach modernizes accounting and finance operations by unifying accounting systems, data, and processes;
automating manual, repetitive activities; enhancing transparency and control; and enabling more real-time delivery of critical accounting
information. 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 ERP systems,
including SAP, Oracle, Microsoft Dynamics, Sage Intacct, and Jack Henry, as well as many other sources of financial data, such as banks,
credit card providers, point-of-sale systems, sub-ledgers, and in-house applications.
BlackLine was founded in 2001. We are a holding company and conduct our operations through our wholly-owned subsidiary,
BlackLine Systems, Inc. (“BlackLine Systems”) and its subsidiaries.
On September 12, 2023, we acquired Data Interconnect (“DI”), hereinafter referred to as the “DI Acquisition”. DI is a cloud-based
invoice-to-cash automation vendor within the electronic invoice presentment and payment (“EIPP”) market. The primary purpose of the DI
Acquisition was to complete our existing accounts receivable automation solution by adding EIPP capabilities to our platform. In doing so, we
now offer a complete end-to-end invoice-to-cash process within the platform.
On January 26, 2022, we acquired FourQ Systems, Inc. (“FourQ”), which we refer to as the “FourQ Acquisition.” The primary purpose
of the FourQ Acquisition was to enhance our existing intercompany accounting automation capabilities by driving end-to-end automation of
traditionally manual intercompany accounting processes.
On October 2, 2020, we acquired Rimilia Holdings Ltd. (“Rimilia”), which we refer to as the “Rimilia Acquisition”. The primary purpose of
the Rimilia Acquisition was to extend our capabilities into an adjacent area, adding accounts receivable automation to financial close
automation.
Our cloud-based solutions include Account Reconciliations, Transaction Matching, Task Management, Financial Reporting Analytics,
Journal Entry, Variance Analysis, Consolidation Integrity Manager, Compliance, Smart Close for SAP, BlackLine Cash Application, Credit &
Risk Management, Collections Management, Disputes & Deductions Management, Team & Task Management, AR Intelligence, Electronic
Invoicing & Compliance, Intercompany Create, Intercompany Balance and Resolve, and Intercompany Net and Settle. These solutions are
offered to customers as scalable solutions that support critical record-to-report and invoice-to-cash processes.
Our principal growth strategies include the following:
Our Growth Strategy
Continue to Innovate and Expand our Solutions. Our ability to internally develop or make strategic acquisitions of new, market-
leading applications and functionalities is integral to our success. We intend to deepen our existing capabilities and extend the functionality
and range of our applications to bring new solutions to the office of the CFO.
Enhance our Leadership Position within the Marketplace. We intend to focus on customer expansion, geography, and industry to
maintain and grow our leadership position.
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Customer Expansion: We believe we have a leading position in the market with both enterprise and select midsize companies.
We intend to leverage our brand recognition, history of innovation, and customer focus to maintain and grow our leadership
position with enterprise market businesses. We pursue a land-and-expand sales model and believe there is significant
opportunity to increase sales of our solutions within our existing customer base. Our pricing model is designed to allow us to
capture additional revenue as our customers’ usage of our platform grows, providing us with an opportunity to increase the
lifetime value of our customer relationships.
Geography: We believe that we have a significant opportunity to expand the use of our cloud-based solutions outside the United
States (“U.S.”). We intend to invest in further expanding our global footprint through organic growth activities and strategic
acquisitions.
Industry: We intend to leverage our customer scale to innovate with industry-specific product extensions, specifically for
industries where we have large total addressable market opportunities and strong brand permission with customers and
partners.
Extend Our Relationships with Partners. We have established strong relationships with technology vendors such as SAP and
Microsoft, professional services firms such as Deloitte and Ernst & Young, and business process outsourcers, such as Accenture and
GenPact. We intend to deepen our relationships with our current partners,
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foster a thriving ecosystem of partnerships and partner with resellers who are well versed in the BlackLine suite and select software firms.
ERP Connectivity. We intend to broaden our partnership with SAP through the SAP solution-extension (“SolEx”) program, extend our
technology integration capabilities with large ERP players, and maintain connectivity to other ERPs and third-party data sources.
We provide powerful cloud-based solutions designed to unify, automate, and streamline accounting and finance operations. The key
BlackLine Solutions
elements of our solutions include:
Comprehensive Platform
We offer integrated suites of applications that deliver a broad range of capabilities to support critical accounting processes such as
financial close, intercompany accounting, invoice-to-cash, and consolidation.
The technology underpinning our software includes a comprehensive base of accounting and finance-specific business logic and rules
engines.
Integration
We provide simple, secure, and automated tools and integrations to transfer data to and from a range of enterprise-wide processes and
systems, including ERPs, as well as many other sources of financial data from in-house applications and third-party providers. In addition, for
companies with multiple systems and complex needs, we can connect with any number of general ledger systems simultaneously, resolving
many of the issues associated with consolidating data across systems.
Independence
Our solutions are flexible and not dependent on any single operating system. They work with and complement most ERPs and other
relevant financial systems our customers may use, enabling agility as organizations evolve and grow, whether organically or inorganically.
Our independence from other systems also means we are able to focus on and innovate for the needs of our customers irrespective of
updates or changes in our customers’ businesses and other systems. We believe this differentiates our solutions in the industry and reduces
risk for customers.
Ease of Use
Our solutions are designed by accounting and finance professionals whose domain expertise and understanding of our customers’
challenges contributes to our software’s ease of use and customer experience. We strive to enable any user to rapidly implement our
software to manage their accounting and finance activities, from the simplest to the most sophisticated tasks. Our user interface includes
role-based dashboards and reports, provides clear visualization of accounting and finance data, enables user collaboration, and streamlines
business processes.
Innovation
Our ability to develop innovative solutions has been a key driver of our success and organic growth. Through a history and culture of
thought leadership, we created the next-generation of powerful software solutions that automate and streamline antiquated, manual
accounting and finance processes to better meet our customers’ diverse and rapidly changing needs. We continue to focus on providing
advanced solutions to other time and labor-intensive accounting and finance challenges.
Our platform is designed to provide the following benefits to our customers:
Key Benefits
Flexibility and scalability
Our solutions are designed for modern business environments and have broad applicability across enterprise and midsize
organizations in almost any industry. Our solutions support complex corporate structures, provide integration across core financial systems,
manage multiple currencies and languages, and scale to support high transaction volumes.
Embedded controls and workflow
Our solutions are designed for the complex global regulatory environment. Our solutions embed controls within standardized,
repeatable, and well-documented workflows, which are designed to result in substantially
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reduced risk of non-compliance or negative audit findings, greater tolerance for regulatory complexity, and increased confidence in financial
reports.
Real-time visibility
We provide users with real-time visibility into the status, progress, and quality of their accounting and finance processes. With
configurable dashboards, user-defined reporting, and the ability to drill down to individual reconciliations, journal entries, and other tasks,
users can track open activities, identify bottlenecks within a process, or intervene to prevent mistakes.
Automation and efficiency
Our solutions can ingest data from a variety of sources, including ERP systems and other data repositories, and apply powerful
automation to financial close, intercompany accounting, invoice-to-cash, and consolidation processes. This streamlines accounting and
finance processes, minimizes manual data entry and allows accounting and finance professionals to focus more of their time on value-added
activities like analysis and business partnership.
Continuous processing
Our solutions help organizations embed quality control, compliance, and financial integrity into their day-to-day processes rather than
rely on the traditional process of validating financial information at the end of each period. Activities such as account reconciliation and
variance analysis can be performed in real-time, thus reducing the risk of errors and creating a more agile accounting environment.
Customers
Our customers include multinational corporations, large enterprises, and midsize 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, 2023, we had
386,814 individual users across 4,398 customers, exclusive of on-premise software. We define a customer as an entity with an active
subscription agreement as of the measurement date. In situations where an organization 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 any incremental increase in revenue, such customer continues to
be treated as a single customer.
Solutions and Services
Our cloud-based solutions for the Office of the Chief Financial Officer are designed to be the primary system of interaction for
accounting and finance professionals. Our solutions unify systems and data and work to drive accuracy, collaboration, efficiency, and control.
Our solutions enable accounting and finance professionals to execute their work continuously, empowering real-time insights and business
partnership. Our solution offerings are comprised of multiple products and capabilities, including financial close, intercompany accounting,
and invoice-to-cash. We also provide resources and services for implementation.
Financial Close Management
The collection of processes by which organizations reconcile, consolidate, and report their financial information at the end of each
period is referred to as record-to-report. For organizations of any size, the traditional way of closing the books is held together by manual
processes and error-prone spreadsheets, increasing risk and threatening the accuracy of financial reporting. Our Financial Close
Management solutions allow customers to standardize and automate key steps across the record-to-report process to ensure accuracy,
control, and timeliness.
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Account Reconciliations provides a centralized workspace from which users can collaborate to substantiate their balance
sheet by completing account reconciliations. Features include standardized templates, workflows for review and approval,
linkage to policies and procedures, and integrated storage of supporting documentation. The product automates otherwise
manual activities in the substantiation process, significantly reducing time and effort and increasing productivity. It also enhances
internal controls by facilitating the appropriate segregation of duties, 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
upon user-configured logic. Our rules engine automatically identifies exceptions, errors, missing data, and variances within large
data sets. The matching engine processes millions of
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records per minute, can be used with any type of data, and allows customers to reconcile transactions in real time.
Task Management enables users to create and manage processes and task lists. The solution provides automatic and recurring
task scheduling, includes configurable workflow, and provides a management console for accounting and finance activities.
Though most commonly used with the financial close, users can create task lists and projects for hundreds of different use cases
ranging from external audits to environmental impact surveys. The solution can be used as a cloud-based, controlled checklist
that includes reporting and alerts to drive greater collaboration, accountability, and visibility.
Financial Reporting Analytics is a modern solution that enables analysis and validation of group level or consolidated financial
data with direct, real-time visibility into the local or underlying details. The solution provides a centralized workspace with end-to-
end transparency and automates ledger-to-ledger, statutory-to-GAAP, tax-to-GAAP, and system-to-system reconciliation to
ensure the completeness and accuracy of consolidated fluctuation results.
Journal Entry allows users to generate, review, and post manual journal entries. Many postings can be fully automated and
calculated based on complex, customer-defined logic or automatically allocated across multiple business units. Validation and
approval checkpoints help ensure the integrity of information passed to other financial applications, including hundreds of ERPs
and subsystems, in a configurable, standardized format.
Variance Analysis automatically calculates, identifies, and provides anomalous fluctuations in balance sheet and income
statement account balances with “always-on” monitoring. Once an item needing investigation is identified, users are
automatically alerted so they can research and determine the source of the fluctuation. Users can then document and sign off on
explanations, enabling stronger control.
Consolidation Integrity Manager manages the automated system-to-system tie-out process that occurs during the
consolidation phase of the financial close. Companies with multiple ERPs utilize a consolidation system to produce their
consolidated financial results. Because these systems contain and produce information that changes continually and requires
constant adjustments, a final tie-out that is typically handled manually in a spreadsheet is necessary prior to publishing results.
This product automates the tie-out process, aggregating balances from dozens or hundreds of different systems and allowing
users to identify exceptions and create adjustments quickly.
Compliance is an integrated solution that facilitates compliance-related initiatives, consolidates project management, and
provides visibility over control self-assessments and testing.
Smart Close for SAP is a fully embedded, purpose-built solution to streamline and automate the close directly in SAP. Smart
Close complements our cloud financial close management solutions to achieve end-to-end automation. Purpose-built automation
allows customers to automate task and job scheduling, verify the correctness of closing transactions, and take action, like raising
alerts, making corrections, or pushing the closing process to the next step with job scheduling.
Intercompany Financial Management
Intercompany transactions occur when entities within a corporate parent organization transact with each other. These transactions are
some of the most complex and frequent sources of uncertainty and process inefficiency for the controller organization, frequently causing
imbalances that must be resolved. The intricate nature of intercompany transactions often drives accounting operations to process a
substantial volume of intercompany charges within the constraints of the fiscal calendar, leaving insufficient time for enhancing the quality of
the underlying data. This prevalent operational practice results in heightened stress for accounting and finance professionals, originating from
an unproductive and avoidable workload. Often manual, time-consuming, and resource-intensive processes, intercompany transactions can
have material impacts on costs if not managed properly. Our intercompany solutions manage the entire intercompany transaction lifecycle
within our platform, from the initial creation of a transaction through the settlement. We believe it is the only widely-available, automated end-
to-end intercompany solution maintained in a single platform. These solutions include:
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Intercompany Create increases visibility into transaction-level data by originating transactions directly within our software.
Intercompany transactions are configured and executed with a simple process that uses billing routes to facilitate the flow of a
transaction and the appropriate tax and transfer pricing mark-ups. The application stores permissions and business logic
exceptions by entity, service, and transaction type, ensuring that both the seller and the buyer of the intercompany transaction
are authorized to conduct business, while billing in a manner that optimizes process efficiency and
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minimizes tax leakage. Invoices are automatically generated for each respective jurisdiction and e-invoicing capabilities can send
intercompany data to country-specific portals.
Intercompany Balance & Resolve centralizes, streamlines, and automates intercompany reconciliation complexity and dispute
management by capturing all intercompany transactions within the virtual subledger and providing resolution actions to reconcile.
This feature reduces intercompany reconciliation risk, effort, and last-minute plugs by automatically flagging out-of-balance
trading pairs and underlying transactions that create exceptions on a continuous basis. Open intercompany transactions are
continuously analyzed to verify offsetting transactions on the respective trading partner books. Exceptions are flagged and users
are automatically notified for investigation and resolution. Automated or workflow-based resolution actions and adjustments bring
the balance back into line for settlement-ready balances.
Intercompany Net and Settle enables real-time visibility into open intercompany transactions that integrate with treasury
systems to facilitate and streamline netting, settlement, and clearing to optimize working capital. Using bilateral and multilateral
netting to reduce the number of transactions that typically incur bank fees, treasury teams can effectively manage the manner
that intercompany balances are closed out using cash and non-cash settlement methodologies to effectively manage the cash
positions of each entity. Users can filter the information by transaction type, hold type, currency, or business relationship. This
feature facilitates the process of netting transactions and helps users make informed, strategic decisions, while managing cash
reporting and forecasting.
Invoice-to-Cash
Cash is vital to every business, and invoice-to-cash is central to improving cash flow. Managing invoice-to-cash well means maximizing
working capital by collecting cash and minimizing credit losses. This critical process is often highly manual. Our unified suite helps customers
collect cash, provide credit, and better understand cash flow.
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Cash Application transforms the order-to-cash cycle by significantly reducing the time it takes to apply cash receipts to open
invoices, resulting in significant reductions in unapplied cash. BlackLine Cash Application drives an automated and effective end-
to-end process from an invoice-to-cash in the bank and fully applied in the subledger. It uses intelligent automation to help
customers accurately apply payments to customers’ invoices in an ERP. Embedded machine learning then reduces the manual
effort involved in the process and releases working capital for our customers.
Credit & Risk Management brings customer and payment behavior data together to enable optimal risk strategies and real-time
risk profiling. Managing the balance between sales and risk of non-payment is critical to profitability. Credit & Risk Management
brings together data from numerous sources, such as credit reference agencies, credit insurers, and payment performance to
understand historical indebtedness and behavior trends of the companies with whom our customers work. This solution works in
tandem with our Collections Management solution to help organizations better understand their customer base and make
informed decisions around collection strategies, recovery sequences, and the prioritization of team tasks.
Collections Management helps customers design collection strategies to fit each of their customer’s sales ledger profile.
Releasing cash from customers is the fastest way to increase working capital. Collections Management streamlines the
collections process and unlocks more cash from companies with automated escalating recovery sequences that enable
collections teams to better prioritize their work by understanding which customers require attention. Customers gain real-time
clarity into what actions and collection strategies are working at each stage of the collection process and can use this information
to collect payments more efficiently, leading to reduced days sales outstanding and improved customer relationships.
Disputes & Deductions Management helps our customers track payment disputes to drive prompt response and resolution.
Unresolved disputes lead to uncollected revenue and can threaten profitability. Disputes & Deductions logs, monitors, and
analyzes invoice disputes and provides our customers automated workflows to accelerate dispute resolution and protect their
customer relationships.
Team & Task Management automates accounts receivable teams’ tasks while ensuring timely execution by using data to drive
priority of actions. The historically manual work behind accounts receivable processes can lead to siloed work and a lack of end-
to-end visibility. Team & Task Management provides full visibility into the accounts receivable process, monitors critical actions
against the volume of work, and allocates resources based on team capacity to prioritize risk management and cash collection.
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AR Intelligence automatically processes, analyzes, and surfaces critical information, such as sales and payment performance
data, customer payment trends, and days sales outstanding. This solution unifies the data across BlackLine’s Invoice-to-Cash
suite to provide data typically difficult to obtain in real-time. Customers using this solution gain insights into customer behavior, as
well as the ability to measure the impact of extended payment terms to cash collections and cash flow, and understand the
predictability of customer payments when building cash flow forecasts.
Electronic Invoicing & Compliance helps our customers generate, send, and monitor invoices in diverse e-invoice formats
through a multitude of delivery channels. Customers can download invoices through secure, branded, customer invoice portals.
BlackLine’s Electronic Invoicing & Compliance can provide financial flexibility with the ability to service inbound customer
payments through a range of versatile payment channels. BlackLine Invoicing & Compliance allows customers to adapt and
adhere to country-specific requirements with evolving e-invoicing regulations across various countries.
Services
Customer service is essential to our customers' success. We offer the following services:
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Professional - With a focus on configuration over customization, our implementation approach favors rapid and efficient
deployments led by accounting experts, rather than technical resources. A typical project will focus on mapping our application to
a customer’s current or ideal process, coaching them on best practices, and helping organizations become self-sufficient, instead
of dependent on additional professional services. For customers that elect to work with a partner or business process outsourcer
for implementation services, BlackLine provides partner training and certification, as well as support for partner-led projects.
Training & Education - We offer a variety of live and web-based training options through BlackLine University. Many customers
consume their training through our e-learning environment, while others select both live and e-learning. Courses cover solutions
functionality, as well as the underlying concepts and demonstrate the power of our platform like financial close, intercompany
accounting, invoice-to-cash, and consolidations.
Customer Success - Our customer success managers, many of whom are former users, provide customers with best practices
and create a success plan for expanded usage of our platform for process optimization. A success plan is central to increased
customer value and customer adoption. This approach positively impacts our retention and upsell efforts.
Transformation - Our transformation team assists with optimization strategies for transformation projects through the BlackLine
Optimization Academy where we teach accountants how to optimize their accounting and reporting processes. Customers learn
what processes can benefit from optimization and can choose to undertake the optimization process themselves or choose our
consulting services or strategic customer advisory services to continue their journey.
Global Support - From our offices in Australia, Canada, England, Japan, Mexico, the Netherlands, Poland, Romania, and the
U.S., we provide tiered customer support, ranging from support provided during business hours to 24/7/365 support. All
customers have access to essential support through our support and community portal, included as part of their subscription. In
2023, we rolled out two additional tiers of support that customers can purchase based on their needs.
Sales and Marketing
We sell our solutions through our direct sales force. Our direct sales force leverages our relationships with technology vendors such as
SAP and Microsoft, professional services firms such as Deloitte and Ernst & Young and business process outsourcers, such as Accenture
and Genpact, to influence and drive customer growth. Since 2018, we have partnered with SAP, incorporating them into the reseller channel
that we use in the ordinary course of business. SAP has the ability to resell our solutions, as SolEx, for which we receive a percentage of the
revenues. SolEx allows us to provide the highest level integration with SAP ERP solutions. Going forward, we intend to become a more
partner-powered organization, harnessing the deep and embedded relationships our partners have with key decision-makers at our
customers.
Our marketing efforts are focused on demand generation, establishing and extending our brand proposition, generating product
awareness, and cultivating our community of users. We generate demand primarily through word-of-mouth, search engine marketing,
campaigns and events, and our network of business process outsourcers, business services organizations and resellers. We leverage online
and offline marketing channels on a global basis, organize customer roundtables and user conferences, and release white papers, case
studies, blogs, and other
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resources. We execute co-marketing activities with partners such as SAP, Ernst & Young, and Deloitte. We further extend our brand
awareness through sponsorships with leading industry organizations such as the American Institute of Certified Public Accountants, or
AICPA, the Institute of Management Accountants, or IMA, the Financial Executives International, or FEI, the Institute of Chartered
Accountants in England and Wales, or ICAEW, and the Association of Chartered Certified Accountants, or ACCA.
Competition
The market for accounting and financial software and services is competitive, rapidly evolving and requires a deep understanding of the
industry standards, accounting rules, and global financial regulations.
We compete with vendors of financial automation software and with software offered by certain ERP vendors. Further, other established
software vendors not currently focused on accounting and finance software and services, including some of our partners, resellers, and other
parties with which we have relationships, may expand their services to compete with us.
We believe the principal competitive factors in our market include the following:
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depth and breadth of solutions;
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 have
greater name recognition, longer operating histories, more established customer and marketing relationships, larger marketing budgets, and
significantly greater resources.
Intellectual Property and Proprietary Rights
Our intellectual property and proprietary rights are important to our business. We currently have two patents. We primarily rely on
copyright, trade secret and trademark laws, trade secret protection, and confidentiality or license agreements with our employees, customers,
partners, and others to protect our intellectual property rights. Though we rely in part upon these legal and contractual protections, we believe
that factors such as the skills and ingenuity of our employees and the functionality and frequent 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 solutions that could
compete in the same market as our solutions. Unauthorized disclosure of our confidential information by our employees or third parties could
occur. Laws of other jurisdictions may not protect our intellectual property and proprietary rights from unauthorized use or disclosure in the
same manner as the U.S. The risk of unauthorized use of our proprietary and intellectual property rights may increase as we continue to
expand outside of the U.S.
Third-party infringement claims are also possible in our industry, especially as software functionality and features expand, evolve and
overlap with other industry segments.
BlackLine's approximately 1,750 employees worldwide contribute their unique talents, experience, and backgrounds to inspire, power,
and guide digital finance transformation. We are committed to driving a culture of inclusion and innovation through our programs designed to
attract, develop, retain, and engage exceptional talent aligned with our values of Think, Create, Serve, and Deliver.
Human Capital
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Through a focus on diversity, equity and inclusion, health and safety, comprehensive compensation and benefits, employee
engagement, and training and development, we strive to cultivate a culture where employees thrive. Our workforce strategy is driven by a
continued focus on our employee culture, including how we find, develop, and retain talent. Every BlackLine employee has access to
resources designed to help them improve their well-being, understand the value of their work, develop their career, and thrive professionally.
Attract
Our core values of Think, Create, Serve, and Deliver, and our embedded approach to diversity, equity, and inclusion, are the
underpinnings of our culture. We embrace the unique value of each person’s life experiences and seek candidates from a wide range of
backgrounds and experiences to join our team. In addition, we believe that fostering an equitable and inclusive environment that brings
together diverse teams better positions us to unlock innovation. We focus on building an inclusive culture and diverse workforce through a
variety of company initiatives, beginning with our hiring practices and our commitment to continually build diversity into our recruiting pipeline.
Over the past year, we have expanded our investment and partnerships with underrepresented groups and organizations to increase our
reach to diverse candidates.
Develop
We believe that one of the primary reasons candidates join BlackLine is for career development opportunities, and we have several
programs and resources to help our employees explore, develop, and achieve their career goals. We invest in our employees’ career growth
and provide a wide range of development opportunities, self-directed learning, and support for continuing education through access to
professional development and reimbursement programs. BlackLine employees are also offered robust training related to BlackLine products
and formal and informal on-the-job training. Career growth and development opportunities are available to all employees, including internal
promotions and transfers.
Retain
To retain our workforce, we strive to offer competitive compensation and comprehensive benefits programs. We review our
compensation practices, both in terms of our overall workforce and individual employees, to ensure our pay practices are fair and equitable.
Our compensation program is built on a pay-for-performance foundation that is designed to attract, motivate, reward, and retain talented
individuals who possess the skills and domain expertise necessary to support our business, contribute to our strategic goals, and create
long-term value for our shareholders. We provide employees with competitive compensation packages that include base salary plus a bonus,
commission, or incentive plan, access to our employee stock purchase plan, where applicable, and equity awards to encourage performance
and retention of our top talent.
Corporate Information
We were incorporated in May 2001. Our principal executive offices are located at 21300 Victory Blvd, 12th Floor, Woodland Hills,
California 91367, and our telephone number is (818) 223-9008.
The names “BlackLine,” “BlackLine Systems,” “BlackLine Cash Application,” and our logo are our trademarks. This Annual Report on
Form 10-K also contains 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 Information
Our 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 public information and for complying
with our disclosure obligations under Regulation FD. Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 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, as amended, or the Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable
after we file such material electronically with or furnish it to the Securities and Exchange Commission, or the SEC. The SEC also maintains a
website that contains our SEC filings. The address of the site is www.sec.gov.
Item 1A. Risk Factors
Investing 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 Financial
Condition and Results of Operations” and our
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consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and uncertainties
described below are not the only ones we face. Additional risk and uncertainties not presently known to us or that we presently deem less
significant 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, the market price of our common stock could decline, and you could lose part or all of your investment.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in BlackLine, as fully described
below. The principal factors and uncertainties that make investing in BlackLine risky include, among others:
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If we are unable to attract new customers and expand sales to existing customers, our growth could be slower than we expect
and our business may be harmed.
Our business and growth depend substantially on customers renewing their subscription agreements with us, and any decline in
our customer renewals could adversely affect our operating results.
Current and future economic uncertainty and other unfavorable conditions in our industry or the global economy could limit our
ability to grow our business and negatively affect our operating results.
We have a history of losses and we may not be able to generate sufficient revenue to achieve or sustain profitability.
We continue to experience growth and organizational change and if we fail to manage our growth effectively, we may be unable
to execute our business plan.
Our quarterly results may fluctuate, and if we fail to meet the expectations of analysts or investors, our stock price and the value
of your investment could decline substantially.
If we are not able to provide successful enhancements, new features or modifications to our software solutions, our business
could be adversely affected.
We derive substantially all of our revenues from a limited number of software solutions, and our growth is dependent on their
success.
If our relationships with technology vendors and business process outsourcers are not successful, our business and growth may
be harmed.
If our security controls are breached or if unauthorized, or inadvertent access to customer, employee or other confidential data is
otherwise obtained, our software solutions may be perceived as insecure, we may lose existing customers or fail to attract new
customers, our business may be harmed and we may incur significant liabilities.
Our increased focus on the development and use of generative artificial intelligence and machine learning technologies (“AI/ML”)
in our platform and our business, as well as our potential failure to effectively implement, use, and market these technologies,
may result in reputational harm or liability, or could otherwise adversely affect our business.
Interruptions or performance problems associated with our software solutions, platform and technology may adversely affect our
business and operating results.
If our software contains serious errors or defects, we may lose revenue and market acceptance and may incur costs to defend or
settle product liability claims.
The market in which we participate is intensely competitive, and if we do not compete effectively, our business and operating
results could be harmed.
The market price of our common stock may be volatile, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
If we are unable to attract new customers and expand sales to existing customers, our growth could be slower than we expect and
our business may be harmed.
Our growth depends in part upon increasing our customer base. Our ability to achieve significant growth in revenues will depend, in
large part, upon the effectiveness of our sales and marketing efforts, both domestically and internationally. We may have difficulty attracting
potential customers that rely on tools such as Excel, or that have
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already invested substantial personnel and financial resources to integrate on-premise or other software into their businesses, as such
organizations may be reluctant or unwilling to invest in a new product. If we fail to attract new customers or maintain and expand those
customer relationships, our revenues will grow more slowly than expected and our business will be harmed.
Our growth also depends upon our ability to add users and sell additional products to our existing customers. It is important for the
growth of our business that our existing customers make additional significant purchases of our products and add additional users to our
platform. Although our customers, users, and revenue have grown rapidly in the past, in recent periods our slower growth rates have
reflected the size 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 in future periods as our customers, users, and revenue could decline, or grow more slowly than we expect. Our business also
depends on retaining existing customers. If we do not retain customers, including due to the acquisition of our customers by other
companies, or our customers do not purchase additional products or we do not add additional users to our platform, our revenues may grow
more slowly than expected, may not grow at all or may decline. Additionally, increasing incremental sales to our current customer base may
require additional sales efforts that are targeted at senior management, which efforts are often associated with complex customer
requirements and additional time to evaluate and test our products, and can lead to long and unpredictable sales cycles, particularly in the
current macroeconomic environment. There can be no assurance that our efforts will result in increased sales to existing customers or
additional revenues.
Our sales and marketing efforts have been and may continue to be impacted by geopolitical developments and other events beyond
our control, including market price volatility and macroeconomic trends. Such events can increase levels of political and economic
unpredictability globally, which has resulted in increased price sensitivity on the part of certain current and prospective customers, and could
negatively impact sales for certain of our premium-priced offerings.
Our business and growth depend substantially on customers renewing their subscription agreements with us and any decline in
our customer renewals could adversely affect our 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 is important that our existing customers renew their subscription agreements when the contract term expires. Although our agreements
typically include automatic renewal language, our customers may cancel their agreements at the expiration of the term. In addition, our
customers may renew for fewer users, renew for shorter contract lengths or renew for fewer products or solutions. Renewal rates may
decline or fluctuate as a result of a variety of factors, including satisfaction or dissatisfaction with our software or professional services, our
pricing or pricing structure, the pricing or capabilities of products or services offered by our competitors, the effects of economic conditions, or
reductions in our customers’ budgets and spending levels. For example, macroeconomic trends have impacted and may continue to impact
our renewal rate. Any prolonged downturn in the global economy in general, or in particular sectors, such as technology or financial services,
would adversely affect the industries in which our customers operate, which could adversely affect our customers’ ability or willingness to
renew their subscription agreements or could cause our customers to downgrade the terms of their subscription agreements. Even in the
absence of unfavorable macroeconomic trends, changes in the size and mix of IT spend, such as favoring newer technologies like AI/ML at
the expense of digital transformation, could negatively impact customers’ ability or willingness to renew their subscription agreements or
could cause our customers to downgrade the terms of their subscription agreements.
Further, as the markets for our existing solutions mature, or as current and future competitors introduce new products or services that
compete with ours, we may experience pricing pressure and be unable to renew our agreements with existing customers or attract new
customers at prices that are profitable to us. If this were to occur, it is possible that we would have to change our pricing model, offer price
incentives or reduce our prices. If our customers do not renew their agreements with us or renew on terms less favorable to us, our revenues
may decline.
Current and future economic uncertainty and other unfavorable conditions in our industry or the global economy could limit our
ability to grow our business and negatively affect our operating 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
revenue growth and potential profitability of our business depend on demand for business software applications and services generally, and
for accounting and finance systems in particular. We are currently operating in a period of economic uncertainty and cannot predict the
timing, strength, or duration of any economic downturn. The global economy has been, and continues to be, adversely affected by concerns
of inflation and rising interest rates, adverse business conditions and liquidity concerns, as well as volatility and uncertainty in the banking
and financial services sector. These general macroeconomic conditions could adversely affect demand for our products and make it difficult
to accurately forecast and plan our future business activities. For example, since the
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second quarter of 2022, we have observed certain customers delaying and deferring purchasing decisions, which has resulted in the
deterioration of near-term demand. In addition, professional services revenue may decrease as new implementation projects are delayed. To
the extent unfavorable conditions in the national and global economy persist or worsen, our business could be harmed as current and
potential customers may reduce accounting, finance, and technology budgets and spending, or postpone or choose not to purchase or renew
subscriptions to our products, which they may consider discretionary. Weakening economic conditions, and related corporate cost-cutting
and tighter budgets, could affect the rate of accounting and finance and information technology spending and adversely affect our current or
potential customers’ ability or willingness to purchase our cloud platform, as well as further delay purchasing decisions, reduce the value or
duration of their subscription contracts, or affect attrition rates, all of which would adversely affect our operating results. Prolonged economic
uncertainties relating to macroeconomic trends could limit our ability to grow our business and negatively affect our operating results.
Unfavorable trends in the national or global economy, such as rising interest rates and conditions resulting from financial and credit market
fluctuations, may cause our customers and prospective customers to decrease their accounting and finance and information technology
budgets, which would limit our ability to grow our business and negatively affect our operating results. The occurrence of a natural disaster,
global public health crisis, geopolitical uncertainty or war has caused, and in the future may cause, customers to request concessions,
including extended payment terms, free modules or better pricing.
In addition, our customers may be affected by changes in trade policies, treaties, government regulations and tariffs, as well as
geopolitical volatility. Trade protection measures, retaliatory actions, tariffs and increased barriers, policies favoring domestic industries, or
increased import or export licensing requirements or restrictions, such as trade sanctions against Russia in response to the war in Ukraine,
could have a negative effect on the overall macro economy and our customers, which could have an adverse impact on our operating results.
The aftermath of Brexit also continues to cause significant political and economic uncertainty in both the UK and the European Union
(“EU”). As a result, the level of economic activity generally in this region could be adversely impacted, negatively affecting customer demand
for our products and our operating results.
Uncertain economic conditions may also adversely affect third parties with which we have entered into relationships and upon which we
depend in order to grow our business, such as technology vendors and public cloud providers. As a result, we may be unable to continue to
grow in the event of prolonged economic uncertainty or future economic slowdowns. See Risks Related to Our Dependence on Third Parties.
We continue to experience growth in our operations, and organizational change, and if we fail to manage our growth effectively, we
may be unable to execute our business plan.
Growth in our customer base and operations has placed, and may continue to place, a significant strain on our managerial,
administrative, operational, financial and other resources, particularly as we focus on cost discipline and efficiency. We anticipate that
additional investments in our infrastructure will be necessary to support the growth of our operations both domestically and internationally.
These additional investments will increase our costs, with no assurance that our business or revenue will grow sufficiently to cover these
additional costs. Labor shortages and increased employee mobility may make it more difficult to hire and retain certain types of employees.
For example, labor shortages have, at times, created greater competition for engineering talent, and we have had to expend additional
resources to address the retention of such employees. Additionally, our workforce continues to be partially remote, and we expect that it will
remain partially remote for the near term. We may experience difficulties onboarding new employees remotely, and maintaining a global
organization and managing a geographically dispersed workforce requires substantial management effort, the allocation of valuable
management resources, and significant additional investment in our infrastructure. We may be unable to improve our operational, financial
and management controls and our reporting procedures to effectively manage our operations and growth, which could negatively affect our
results of operations and overall business. In addition, we may be unable to manage our expenses effectively in the future, which may
negatively impact our gross margins or operating expenses and cause us to realign resources in order to improve operational efficiency,
which may include a slowdown in hiring or reduction in force, such as the workforce reduction initiated in December 2022, and the more
recent reduction in force announced as part of a broader restructuring plan in August 2023. Moreover, if we fail to manage our anticipated
growth or any realignment of resources, such as a restructuring or reduction in force, in a manner that preserves the key aspects of our
corporate culture, employee morale, productivity and the quality of our software solutions may suffer, which could negatively affect our brand
and reputation and harm our ability to retain and attract customers.
If we are not able to provide successful enhancements, new features or modifications to our software solutions, our business
could be adversely affected.
If we are unable to provide enhancements and new features for our existing solutions or new solutions that achieve market acceptance
or that keep pace with rapid technological developments, our business could be
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adversely affected. For example, advancements in technology and the introduction of products by our competitors or others incorporating
new technologies, such as AI/ML, the emergence of new industry standards, or changes in customer requirements, may alter the market for
our products, and businesses that are slow to adopt or fail to adopt these new technologies may face a competitive disadvantage. The
success of enhancements, new products and solutions depends on several factors, including timely completion, introduction and market
acceptance. We must continue to meet changing expectations and requirements of our customers and, because our platform is designed to
operate on a variety of systems, we will need to continuously 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
ERP systems such as Microsoft Dynamics, Oracle, and SAP, and will require modifications and enhancements as these systems change
over time. Any failure of our solutions to operate effectively with future platforms and technologies could reduce the demand for our solutions
or result in customer dissatisfaction. Furthermore, uncertainties about the timing and nature of new solutions or technologies, or modifications
to existing solutions or technologies, could increase our research and development expenses. If we are not successful in developing
modifications and enhancements to our solutions or if we fail to bring them to market in a timely fashion, our solutions may become less
marketable, less competitive or obsolete, our revenue 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 growth is dependent on their
success.
We currently derive a significant portion of our revenue from our Close Process Management solution, and expect to continue to derive
a majority of our revenues from our Close Process Management solution. As a result, the continued growth in market demand for this
solution is critical to our continued success. We cannot be certain that any new software solutions or products we introduce will generate
significant revenues. Accordingly, our business and financial results have been and will be substantially dependent on a limited number of
solutions.
If our security controls are breached or unauthorized, or inadvertent access to customer, employee or other confidential data is
otherwise obtained, our software solutions may be perceived as insecure, we may lose existing customers or fail to attract new
customers, 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 confidential
financial information regarding their business and personal or identifying information of their customers or employees. Additionally, we
maintain our own proprietary, confidential and otherwise sensitive information. Our platform is at risk for security breaches and incidents as a
result of third-party action, employee, vendor or contractor error, cyberattacks (including from nation states and affiliated actors) and other
forms of hacking, malfeasance, ransomware and other malicious software, or other factors. The risk of a cybersecurity incident occurring has
increased as more companies and individuals work remotely, potentially exposing us to new, complex threats. Additionally, geopolitical
events such as the war in Ukraine may create heightened risks of cyber attacks for us and our service providers, and we and they may be
unable to defend against any such attacks. If any unauthorized or inadvertent access to, or a security breach or incident impacting our
platform or other systems or networks used in our business occurs, such event could result in the loss, alteration, or unavailability of data,
unauthorized access to, or use or disclosure of data, and any such event, or the belief or perception that it has occurred, could result in a loss
of business, severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation,
indemnity obligations, and damages for contract breach or penalties for violation of applicable laws or regulations. Additionally, service
providers who store or otherwise process data on our behalf, including third party and public-cloud infrastructure, also face security risks. As
we rely more on third-party and public-cloud infrastructure, such as Google Cloud Platform, and other third-party service providers, we will
become more dependent on third-party security measures to protect against unauthorized access, cyberattacks and the mishandling of
customer, employee and other confidential data and we may be required to expend significant time and resources to address any incidents
related to the failure of those third-party security measures. Our ability to monitor our third-party service providers' data security is limited,
and in any event, attackers may be able to circumvent our third-party service providers' data security measures. There have been and may
continue to be significant attacks on certain third-party providers, and we cannot guarantee that our or our third-party providers' systems and
networks have not been breached or otherwise compromised, or that they do not contain exploitable defects or bugs that could result in a
breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our platform. We may
also suffer breaches of, or incidents impacting, our internal systems. Security breaches or incidents impacting our platform or our internal
systems could also result in significant costs incurred in order to remediate or otherwise respond to a breach or incident, which may include
liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other
business partners in an effort to maintain business relationships after a
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breach, and other costs, expenses and liabilities. We may be required to or find it appropriate to expend substantial capital and other
resources to alleviate problems caused by any actual or perceived security breaches or incidents.
We have incorporated and may continue to incorporate AI/ML solutions and features into our platform and otherwise within our
business, which may create additional cybersecurity risks or increase cybersecurity risks, including risks of security breaches and incidents.
Further, AI/ML technologies may be used for certain cybersecurity attacks, and may increase their frequency and intensity, resulting in
heightened risks of security breaches and incidents.
Additionally, many jurisdictions have enacted or may enact laws and regulations requiring companies to notify individuals of data
security breaches involving certain types of personal data. These or other disclosures regarding a security breach or incident could result in
negative publicity to us, which may cause our customers to lose confidence in the effectiveness of our data security measures which could
impact our operating results.
We incur significant expenses to minimize the risk of security breaches, including deploying additional personnel and protection
technologies, training employees annually, and engaging third-party experts and contractors. We continually increase our investments in
cybersecurity to counter emerging risks and threats. If a high profile security breach or incident occurs with respect to another Software as a
Service (“SaaS”) provider or other technology companies, our current and potential customers may lose trust in the security of our platform or
in the SaaS business model generally, which could adversely impact our ability to retain existing customers or attract new ones. Such a
breach or incident, or series of breaches or incidents, could also result in regulatory or contractual security requirements that could make
compliance challenging. Even in the absence of any security breach or incident, customer concerns about privacy, security, or data protection
may deter them from using our platform for activities that involve personal or other sensitive information.
Because the techniques used to obtain unauthorized access or to sabotage systems change frequently, and often are not identified
until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
We may also experience security breaches and incidents that may remain undetected for an extended period of time. Periodically, we
experience cyber security events including “phishing” attacks targeting our employees, web application and infrastructure attacks, and other
information technology incidents. These threats continue to evolve in sophistication and volume and are difficult to detect and predict due to
advances in electronic warfare techniques, advances in cryptography and other technologies including AI/ML, and new and sophisticated
methods used by criminals including phishing, social engineering or other illicit acts. We may experience security breaches and incidents
introduced through the tools and services we use. We continuously monitor our infrastructure, adjust our intrusion detection capabilities, and
practice security-by-design principles in our software development lifecycle to help prevent third-party related incidents. However, there can
be no assurance that our defensive measures will prevent cyber-attacks or other security breaches or incidents, and any such attacks,
breaches or incidents could damage our brand and reputation and negatively impact our business.
Our customers upload sensitive data to our platform, and data security is therefore a critical competitive factor in our industry. We make
numerous statements in our privacy policy and customer agreements, through our certifications to standards and in our marketing materials,
providing assurances about the security of our platform, including descriptions of security measures we employ. Should any of these
statements be untrue, be perceived to be untrue, or become untrue, even through circumstances 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 policies covering certain security and privacy damages and claim expenses may not be sufficient to
compensate for all potential liability. Although we maintain cyber liability insurance, we cannot be certain that our 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.
Our increased focus on the development and use of generative artificial intelligence and machine learning technologies in our
platform and our business, as well as our potential failure to effectively implement, use, and market these technologies, may result
in reputational harm or liability, or could otherwise adversely affect our business.
We have incorporated and may continue to incorporate AI/ML solutions and features into our platform, and otherwise within our
business, and these solutions and features may become more important to our operations or to our future growth over time. There can be no
assurance that we will realize the desired or anticipated benefits from AI/ML, or at all, and we may fail to properly implement or market our
AI/ML solutions and features. Our competitors or other third parties may incorporate AI/ML into their products, offerings, and solutions more
quickly or more successfully than we do, which could impair our ability to compete effectively, and adversely affect our results of operations.
Additionally, our AI/ML solutions and features may expose us to additional claims, demands, and
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proceedings by private parties and regulatory authorities and subject us to legal liability as well as brand and reputational harm. For example,
the AI/ML models that we use are trained using various data sets, and if our models are incorrectly designed, the data we use to train them is
incomplete or inadequate, or we do not have sufficient rights to use the data on which our models rely, the performance of our AI/ML
solutions and features, as well as our reputation, could suffer or we could incur liability through the violation of contractual or regulatory
obligations. The legal, regulatory, and policy environments around AI/ML are evolving rapidly, and we may become subject to new legal and
other obligations in connection with our use of AI/ML, which could require us to make significant changes to our policies and practices,
necessitating expenditure of significant time, expense, and other resources.
Interruptions or performance problems associated with our software solutions, platform and technology may adversely affect our
business and operating results.
Our continued growth depends in part on the ability of our current and potential customers to access our platform at any time. Our
platform is proprietary, and we rely on the expertise of members of our engineering, operations and software development teams for its
continued performance. We have experienced, and may in the future experience, disruptions, outages and other performance problems due
to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due
to an overwhelming number of users accessing our platform simultaneously, denial of service attacks or other security related incidents. In
some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time.
Because of the seasonal nature of financial close activities, increasing complexity of our platform and expanding user population, it may
become difficult to accurately predict and timely address performance and capacity needs during peak load times. If our platform is
unavailable or if our users are unable to access it within a reasonable amount of time or at all, our business will be harmed. In addition, our
infrastructure does not currently include the real-time mirroring of data. Therefore, in the event of any of the factors described above, or other
failures of our infrastructure, customer data may be permanently lost. Our customer agreements typically include performance guarantees
and service level standards that obligate us to provide credits in the event of a significant disruption in our platform. To the extent that we do
not effectively address capacity constraints, upgrade our systems and continually develop our technology and network architecture to
accommodate actual and anticipated changes in technology, our business 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
settle product liability claims.
Complex software such as ours often contains errors or defects, particularly when first introduced or when new versions or
enhancements are 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 reconciliation
process, errors, defects or other performance problems could result in damage to our customers. They could seek significant compensation
from us for the losses they suffer. Although our customer agreements typically contain provisions designed to limit our exposure to product
liability claims, existing or future laws or unfavorable judicial decisions could negate these limitations. Even if not successful, a product
liability claim brought against us would likely be time-consuming and costly and could seriously damage our reputation in the marketplace,
making it harder for us 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
attract and 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 leadership
team, some of whom are new, in the areas of research and development, operations, security, marketing, sales and general and
administrative functions. Changes in our executive management team resulting from the hiring or departure of executives, or our leadership
structure, could disrupt our business, and could impact our ability to preserve our culture, which could negatively affect our ability to recruit
and retain personnel. For example, in March 2023 we appointed co-Chief Executive Officers, our founder Therese Tucker and former Lead
Independent Director Owen Ryan, which is a unique structure for BlackLine, and such structure may not achieve the benefits we intend. Our
executive officers and other key personnel are at-will employees and, therefore, they could terminate their employment with us at any time.
Any such departure could be particularly disruptive in light of the leadership transition. Competition for executive management is high, and it
may take months to find a candidate that meets our requirements. Such recruiting efforts could divert the attention of our existing
management team. Accordingly, the loss of one or more of our executive officers or key employees could have an adverse effect on our
business.
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In addition, to execute our growth plan, we must attract and retain highly-qualified personnel. Competition for personnel is intense,
especially for engineers experienced in designing and developing software applications, and experienced sales professionals. We have from
time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications,
and this difficulty may be heightened by labor shortages, higher employee turnover and slower hiring rates associated with hybrid work. In
addition, we may need to increase our employee compensation levels in response to competition, rising inflation or labor shortages, which
would increase our operating costs and reduce our profitability. Many of the companies with which we compete for experienced personnel
have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to
assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources. Likewise, if
competitors hire our employees, we may divert time and resources to deter any breach by our former employees or their new employers of
their respective legal obligations. Given the competitive nature of our industry, we have both received and asserted such claims in the past.
In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their
employment. If the perceived value of our equity awards declines, due to volatile market conditions, stock price fluctuations or otherwise, it
may adversely affect our ability to recruit and retain highly-skilled employees. Further, if we fail to attract new personnel or fail to retain and
motivate our current personnel, our business and growth prospects could be 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
sales will not grow as quickly as expected, or at all, and our business and operating results and financial condition would be
adversely affected.
We operate in a rapidly evolving industry focused on modernizing financial and accounting operations. Our solutions are relatively new
and have been developed to respond to an increasingly global and complex business environment with more rigorous regulatory standards.
For example, we have recently announced an AI-enabled solution that will be integrated into our Intercompany Financial Management
solution. While the use of AI/ML is leading to advancements in technology, if our new solutions are not widely adopted and accepted, or fail to
operate as expected, our business and reputation may be harmed. If organizations do not increasingly allocate their budgets to financial
automation software as we expect or if we do not succeed in convincing potential customers that our platform should be an integral part of
their overall approach to their accounting processes, our sales may not grow as quickly as anticipated, or at all. Our business is substantially
dependent on enterprises recognizing that accounting errors and inefficiencies are pervasive and are not effectively addressed by legacy
solutions. During the past twelve months, primarily due to the uncertain macroeconomic environment, we have seen certain new and existing
customers halt or decrease investment in work transformation, which has negatively impacted our business. Further deterioration in general
economic conditions in the U.S. or worldwide, including as a result of continued uncertainty in the financial markets, increased inflation or
interest rates, or uncertainty in the financial services markets associated with bank failures, or geopolitical events such as the war in Ukraine,
may also cause our customers to reduce their overall information technology spending, and such reductions may disproportionately affect
software solutions like ours to the extent customers view our solutions as discretionary. If our sales and revenue do not increase for any of
these reasons, or any other reason, our business, 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
and in the breadth and scope of the products and services they offer. We often compete with other vendors of financial automation software,
and we also compete with large, well-established, enterprise application software vendors whose software contains components that
compete with our platform. In the future, a competitor offering ERP software could include a free service similar to ours as part of its standard
offerings or may offer a free standalone version of a service similar to ours. Further, other established software vendors not currently focused
on accounting and finance software and services, including some of our partners, resellers, and other parties with which we have
relationships, 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 to new or changing opportunities, technologies, standards, or customer requirements. In addition, some of our
competitors have partnered with, or have 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.
Market acceptance of our products may also be affected by customer confusion associated with the introduction of new and emerging
technologies by us and our competitors, or changes in technological trends, such
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as the increase in the use of AI/ML. With the introduction of new technologies, the evolution of our platform and new market entrants, we
expect competition to intensify in the future. Increased competition generally could result in reduced sales, reduced margins, losses or the
failure of our platform to achieve or maintain more widespread market acceptance, any of which could harm our business.
Failure to effectively organize and motivate our sales resources 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 drive our sales and
marketing operations and activities. As we have grown and scaled our operations, we have aligned our sales team to help streamline the
customer experience. We rely on our direct sales force, which includes an account management team, to obtain new customers and to
maximize the lifetime value of our customer relationships through retention and upsell efforts. Our success will depend, in part, on our ability
to support new and existing customer growth and maintain customer satisfaction. As we and many of our customers have transitioned to a
hybrid or fully remote workplace, our sales and marketing teams have continued to primarily engage with customers online and through other
communication channels, including virtual meetings. There is no guarantee that our sales and marketing teams will be as successful or
effective using these other communication channels as they try to build relationships. If we cannot provide our teams with the tools and
training to enable them to do their jobs efficiently and satisfy customer demands, we may not be able to achieve anticipated revenue growth
as quickly as expected.
In addition, we believe that there is significant competition for experienced sales professionals with the sales skills and technical
knowledge that we require. Our ability to achieve significant revenue growth will depend, in part, on our success in recruiting, training, and
retaining a sufficient number of experienced sales professionals. New hires require significant training and time before they achieve full
productivity, particularly in new sales segments and territories. Sales professionals that we hire may not become as productive as quickly as
we expect, or they may not achieve the levels of productivity we anticipate, and we may be unable to hire or retain sufficient numbers of
qualified individuals in the markets where we do business. Our business will be harmed if our sales professionals are not as successful as we
anticipate at driving and completing sales.
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
existing customers 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 from competitive 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 our platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive
as compared to those of 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 our
market becomes more competitive, as we expand into new markets and as more sales are generated. To the extent that these activities yield
increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand,
our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers or fail to attract
potential customers, all of which would adversely affect our business, results of operations and financial condition.
We may be unable to integrate acquired businesses and technologies successfully, or achieve the expected benefits of these
transactions 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, we recently completed the acquisition of DI. We also may enter into
relationships with other businesses to expand our products and services, which could involve preferred or exclusive licenses, additional
channels of distributions or discount pricing.
Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to complete these transactions may be
subject to approvals that are beyond our control. Consequently, these transactions, even if announced, may not be completed. In connection
with a strategic transaction, we may:
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issue additional equity or convertible debt securities that would dilute our existing stockholders;
use cash that we may need in the future to operate our business;
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incur large charges or substantial liabilities;
incur debt on terms unfavorable to us or that we are unable to repay; or
become subject to adverse tax consequences, substantial depreciation, and amortization, or deferred compensation charges.
Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we
may encounter difficulties and incur significant costs assimilating or integrating the businesses, technologies, products, policies, 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. 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 unknown risks or liabilities, which may lead to additional
expenses, impairment charges or write-offs, restructuring charges, or other adverse impacts to our business, results of operations, or
financial condition.
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
been integrated into large-scale, enterprise-wide technology environments, and specialized use cases, and our success depends on our
ability to implement our platform successfully in these environments. We often assist our customers in implementing our platform, but many
customers attempt to implement even complex deployments themselves or use a third-party service firm. If we or our customers are unable
to implement our platform successfully, or are unable to do so in a timely manner, customer perceptions of our platform and company may be
impaired, our reputation 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
not implemented or used correctly or as intended, including if customers input incorrect or incomplete financial data into our platform,
inadequate performance may result. Because our customers rely on our platform to manage their financial close and other financial tasks,
the incorrect or improper implementation or use of our platform, our failure to train customers on how to use our platform efficiently and
effectively, or our failure to provide adequate product support to our customers, may result in negative publicity or legal claims against us.
Also, as we continue to expand our customer 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 operational
issues. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for product support. We
also may be unable to modify the nature, scope and delivery of our product support to compete with changes in product support services
provided by our competitors. Increased customer demand for product support, without corresponding revenue, could increase costs and
adversely affect our operating results. Our sales are highly dependent on our business reputation and on positive recommendations from our
existing customers. Any failure to maintain high-quality product support, or a market perception that we do not maintain high-quality product
support, could adversely affect our reputation, our ability to sell our solutions to existing and prospective customers, our business, operating
results, and financial condition.
We provide service level commitments under our customer contracts, and if we fail to meet these contractual commitments, our
revenues could be adversely affected.
Our customer agreements typically provide service level commitments. If we are unable to meet the stated service level commitments
or suffer 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
significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any
extended service outages could adversely affect our reputation, revenues and operating results.
Risks Related to Our Financial Performance or Results
We have a history of losses and we may not be able to generate sufficient revenue to achieve or sustain profitability.
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The year ended December 31, 2023 was our first profitable full fiscal year. However, we may not achieve or maintain profitability in
future periods, or if we are profitable, we may not fully achieve our profitability targets. We have incurred net losses attributable to BlackLine,
Inc. in recent periods, including $29.4 million and $115.2 million for the years ended December 31, 2022, and 2021, respectively. We had an
accumulated deficit of $214.8 million at December 31, 2023. We expect our costs to increase in future periods as we continue to expend
substantial financial and other resources on:
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development of our cloud-based platform, including investments in research and development, product innovation to expand the
features and functionality of our software solutions and improvements to the scalability and security of our platform;
sales and marketing, including expansion of our direct sales force and our relationships with technology vendors, professional
services 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 to
offset the expense and may harm our profitability. If we fail to continue to grow our revenue, we may not achieve or sustain profitability.
Our quarterly results may fluctuate, and if we fail to meet the expectations of analysts or investors, our stock price and the value of
your investment 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 quarterly
financial results fall below the expectations of investors or any securities analysts who may follow our stock, the price of our common stock
could decline substantially. Some of the important factors that may cause our revenue, operating results and cash flows to fluctuate from
quarter to quarter include:
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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
or services, delay a prospective customer’s purchasing decision or affect customer retention, including the macroeconomic
environment, uncertainty in the financial services market, inflation, rising interest rates or geopolitical events such as the war in
Ukraine;
the impact and timing of expenses related to restructuring actions;
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;
seasonality of our business; and
changes in customer budgets and 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,
and cash flows to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue, operating results and cash flows may
not be meaningful and should not be relied upon as an indication of future performance.
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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
end of each quarter and year, which is often the result of buying decisions by our customers. Seasonality may be reflected to a much lesser
extent, and sometimes may not be immediately apparent, in our revenue, due to the fact that we recognize subscription revenue over the
term of 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 operating results and financial metrics
difficult.
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 the
potential customer, the size of the potential contract and the type of solution or product being purchased. The sales cycle for our global
enterprise customers is generally longer than that of our midsize customers. In addition, the length of the sales cycle tends to increase for
larger contracts and for more complex, strategic products like Intercompany Financial Management. As we continue to focus on increasing
our average contract size and selling more strategic products, we expect our sales cycle to lengthen and become less predictable. This could
cause variability in our operating results 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, including due to increased scrutiny of spending.
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We may incur higher costs and longer sales cycles as a result of large enterprises representing an increased portion of our revenue. In
this market, the decision to subscribe to our solutions may require the approval of more technical and information security personnel and
management levels within a potential customer’s organization, and if so, these types of sales require us to invest more time educating these
potential customers. In addition, larger organizations may demand more features and integration services and have increased purchasing
power and leverage in negotiating contractual arrangements with us, which may contain restrictive terms favorable to the larger organization.
As a result of these factors, these sales opportunities may require us to devote greater research and development, sales, product support
and professional services 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 a
particular period, or if a significant amount of transactions are delayed until a subsequent period, our operating results for that period, and for
any future periods in which revenue from such transactions would otherwise have been recognized, may be adversely affected.
Recently, as a result of uncertainty around general macroeconomic conditions, customers have been delaying and deferring purchasing
decisions, which has led to a deterioration in near term demand. In addition, we may devote greater research and development, sales,
product support, and professional services resources to potential customers that do not result in actual sales or revenue, resulting in
increased costs and reduced profitability, and which could strain our resources.
We recognize subscription revenue over the term of our customer contracts and, consequently, downturns or upturns in new sales
may not 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-
year terms 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 from the recognition of deferred revenue related to subscriptions entered into during previous quarters. Consequently, a decline in
new or renewed subscriptions in any single quarter may have a small impact on our revenue results for that quarter. However, such a decline
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negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our
platform, and potential changes in our pricing policies or rate of expansion or retention, may not be fully reflected in our results of operations
until future periods. We may also be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, a
significant majority of our costs are expensed as incurred, while revenue is recognized over the life of the agreement with our customer. As a
result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier
periods of the terms of our agreements. Our subscription model also makes it difficult for us to rapidly increase our revenue through
additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.
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 the Euro. As we grow our international operations, we expect the amount of our revenues that are denominated in foreign currencies to
increase in the future. Accordingly, changes in the value of foreign currencies relative to the U.S. Dollar could affect our revenue and
operating results due to transactional and translational remeasurements that are reflected in our results of operations. As a result of such
foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In
addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the
expectations of our investors, the trading price of our common stock could be adversely affected.
We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use
derivative instruments, such as foreign currency forward and option contracts, to hedge exposures to fluctuations in foreign currency
exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable
movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce
additional risks if we are unable to structure effective hedges with such instruments.
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
not be recoverable. Goodwill is required to be tested for impairment at least annually. At December 31, 2023, we had goodwill and intangible
assets with a net book value of $528.0 million primarily related to acquisitions. 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 fair value that
could result in an impairment charge to our goodwill or intangible assets. Any such charges may have a material negative impact on our
operating results.
Our ability to use our net operating losses to offset future taxable income may be subject to limitations.
As of December 31, 2023, we had federal and state net operating loss carryforwards (“NOLs”) of $177.2 million and $127.9 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 arising from previous ownership changes, and if we undergo an ownership change, our ability to utilize NOLs could be further
limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an
ownership change under Section 382 of the 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 risk that due to regulatory changes, such as suspensions on the use of NOLs, or other
unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future taxable income. For these reasons, we may
not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability. The legislation commonly referred to as
the Tax Cuts and Jobs Act of 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act, includes changes to the U.S.
federal corporate income tax rate and changes to the rules governing the deductibility of certain NOLs, which may impact our ability to utilize
such NOLs.
Risks Related to Our Dependence on Third Parties
If our relationships with technology vendors and business process outsourcers are not successful, our business and growth will
be harmed.
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 Microsoft Dynamics to market our solutions to
users of their ERP solutions, and professional services firms such as
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Deloitte and Ernst & Young, 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 market our solutions by offering a complementary
suite of services. In particular, our solution integrates with SAP’s ERP solutions. SAP is part of the reseller channel that we use in the
ordinary course of business. SAP has the ability to resell our solutions as SAP SolEx, for which we receive a percentage of the revenues. If
we are unsuccessful in maintaining our relationship with SAP, if our reseller arrangement with SAP is less successful than we anticipate, if
our customers that use an SAP ERP solution do not renew their subscriptions directly with us and instead purchase our solution through the
SAP reseller channel or if we are unsuccessful in supporting or expanding our relationships with other companies, our business would be
adversely affected. Additionally, while we continue to build relationships with a variety of third party partners, to the extent that our
partnership with SAP continues to expand, this partnership may be a deterrent to other potential partners.
Identifying, negotiating and documenting relationships with other companies require significant time and resources. Our agreements
with technology vendors are typically limited in duration, non-exclusive, cancellable upon notice and do not prohibit the counterparties from
working with our 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 resold by SAP as a
solution extension, our business could be adversely affected. Our competitors may be effective in providing incentives to third parties to favor
their products or services or to prevent or reduce subscriptions to our platform. If we are unsuccessful in establishing or maintaining our
relationships, or if the counterparties to our relationships offer competing solutions, our ability to compete in the marketplace or to grow our
revenue could be impaired and our operating results could suffer. Even if we are successful, we cannot assure you that these relationships
will result in improved operating results.
We rely on Google Cloud Platform (“GCP”), Microsoft Azure (“Azure”), Amazon Web Services (“AWS”) and third-party data centers
(collectively, “public cloud providers”) to deliver our cloud-based software solutions, and any disruption of our use of public cloud
providers could negatively impact our operations and harm our business.
We manage our software solutions and serve most of our customers using a cloud-based infrastructure that has historically been
operated in a limited number of third-party data center facilities in North America and Europe. We are currently migrating some of our third-
party data centers to GCP, increasing our reliance on this cloud provider. Additionally, we rely on Azure to serve Rimilia customers, and we
rely on AWS to serve FourQ customers. As we implement the transition to GCP, there could be occasional planned or unplanned downtime
for our cloud-based software solutions and potential service delays, all of which will impact our customers’ ability to use our solutions. We
may also need to divert resources away from other important business operations, which could harm our business and growth. Additionally, if
the costs to migrate to GCP are greater than we expect or take significantly more time than we anticipate, our business could be harmed.
We do not control the operation of our public cloud providers. Any changes in third-party service levels or any disruptions or delays
from errors, defects, hacking incidents, security breaches, computer viruses, DDoS attacks, bad acts or performance problems could harm
our reputation, damage our customers’ businesses, and adversely affect our business and operating results. Our public cloud providers are
also vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, war, public health crises, terrorist attacks, power losses,
hardware failures, systems failures, telecommunications failures and similar events. We may have limited remedies against third-party
providers in the event of any service disruptions. If our third-party public cloud providers are compromised or unavailable or our customers
are unable to access our solutions for any reason, our business would be materially and adversely affected.
Our customers have experienced minor disruptions and outages in accessing our solutions in the past, and may experience
disruptions, outages, and other performance problems. Although we expend considerable effort to ensure that our platform performance is
capable of handling existing and increased traffic levels, the ability of our cloud-based solutions to effectively manage any increased capacity
requirements depends on our public cloud providers. Our public cloud providers may not be able to meet such performance requirements,
especially to cover peak levels or spikes in traffic, and as a result, our customers may experience delays in accessing our solutions or
encounter slower performance in our solutions, which could significantly harm the operations of our customers. 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
provisioning of additional cloud hosting capacity requires lead time. As we continue to restructure our data management plans, and increase
our cloud hosting capacity, we have and expect to in the future move or transfer our data and our customers’ data. Despite precautions taken
during such processes and
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procedures, any unsuccessful data transfers may impair the delivery of our service, and we may experience costs or downtime in connection
with the transfer of data to other facilities which may lead to, among other things, customer dissatisfaction and non-renewals. Our public
cloud providers have no obligations to renew their agreements with us on commercially reasonable terms, or at all. If any of our public cloud
providers increases pricing terms, terminates or seeks to terminate our contractual relationship, establishes more favorable relationships with
our competitors, or changes or interprets their terms of service or policies in a manner that is unfavorable with respect to us, we may be
required to transfer to other providers. If we are required to transfer to other providers, we would incur significant costs and experience
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
condition could be adversely affected.
We believe that continued growth in our business is dependent upon identifying, developing, and maintaining strategic relationships
with companies that resell our solutions. We plan to expand our growing network of resellers and to add new resellers, in particular to help
grow our midsize business globally. Our agreements with our existing resellers are non-exclusive, meaning resellers may offer customers the
products of several different companies, including products that compete with ours. They may also cease marketing our solutions with limited
or no notice and with little or no penalty. We expect that any additional resellers we identify and develop will be similarly non-exclusive and
not bound by any requirement to continue to market our solutions. If we fail to identify additional resellers in a timely and cost-effective
manner, or at all, or are unable to assist our current and future resellers in independently selling our solutions, our business, results of
operations, and financial condition could be adversely affected. If resellers do not effectively market and sell our solutions, or fail to meet the
needs of our customers, our reputation and ability to grow our business may also be adversely affected.
We depend and rely upon SaaS applications from third parties to operate our business and interruptions or performance problems
with these 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
order management, 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
manage finances could be interrupted and our processes for managing sales of our solutions and supporting our customers could be
impaired until equivalent 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
our software solutions.
We rely on computer hardware purchased or leased and software licensed from third parties, including third-party SaaS applications, in
order to deliver our software solutions. This hardware and software may not continue to be available on commercially reasonable terms, if at
all. Any loss of the right to use any of this hardware or software could result in delaying or preventing our ability to provide our software
solutions until equivalent technology is either developed by us or, if available, identified, obtained and integrated. In addition, errors or defects
in third-party hardware or software used in our software solutions could result in errors or a failure, which could damage our reputation,
impede our ability to provide our platform or process information, and adversely affect our business.
Risks Related to Our Legal and Regulatory Environment
Our long-term success depends, in part, on our ability to expand the sales of our solutions to customers located outside of the
U.S., and thus our business is susceptible to risks associated with international sales and operations.
We currently maintain offices and/or have personnel in Australia, Canada, France, Germany, India, Japan, Mexico, the Netherlands,
Poland, Romania, Singapore, and the United Kingdom, and we intend to build out our international operations. We have also executed
several acquisitions and strategic transactions as part of our ongoing international expansion strategy. We derived approximately 28%, 29%,
and 28% of our revenues from sales outside the U.S. in the years ended December 31, 2023, 2022, and 2021, respectively. Any international
expansion efforts that we may undertake, including acquisitions of businesses outside the U.S., such as our acquisition of Rimilia Holdings
Ltd. or our acquisition of FourQ Systems, Inc. may not be successful. In addition, conducting international operations in new markets subjects
us to new risks that we have not generally faced in the U.S. These risks include:
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localization of our solutions, including translation into foreign languages and adaptation for local practices and regulatory
requirements;
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lack of familiarity and burdens of complying with foreign laws, legal standards, regulatory requirements, tariffs and other barriers;
changes in legal and regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions,
such as sanctions against Russia in response to the war in Ukraine;
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 on the repatriation of earnings;
uncertain political and economic climates, including the significant volatility in the global financial markets and increasing
inflation;
the impact of natural disasters, climate change, war, including the war in Ukraine, and public health pandemics, on employees,
customers, partners, third-party contractors, travel and the global economy; 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 international
markets also requires significant management attention and financial resources. Any negative impact from our international business efforts
could negatively impact our business, results of operations and financial condition as a whole.
Privacy and cybersecurity concerns and evolving domestic or foreign laws and regulations, including increased restrictions of
cross-border data transfers, may limit or reduce the adoption of our services, result in significant costs and compliance
challenges, and adversely affect our business.
Global legal and regulatory requirements related to collecting, storing, handling, transferring, and otherwise processing personal data
are rapidly evolving in ways that require our business to adapt to support our compliance and our customers’ compliance. As the regulatory
focus on privacy, data protection, and cybersecurity intensifies worldwide, and jurisdictions increasingly consider and adopt laws and
regulations relating to these matters, the potential risks related to processing personal data by our business may grow. In addition, possible
adverse interpretations of existing laws and regulations by governments in countries where we or our customers operate, as well as the
potential implementation of new legislation, could impose significant obligations in areas affecting our business or prevent us from offering
certain services in jurisdictions where we operate. Any failure or perceived failure to comply with applicable laws or regulations relating to
privacy, data protection, or cybersecurity may adversely affect our business.
Privacy, data protection, and cybersecurity have become significant issues in the U.S., Europe, and in many other jurisdictions where
we offer our products. Following the EU’s passage of the General Data Protection Regulation (“GDPR”), which became effective in May
2018, the global regulatory landscape relating to privacy, data protection, and cybersecurity has grown increasingly complex and fragmented
and is rapidly evolving. As a result, our business faces current and prospective risks related to increased regulatory compliance costs,
reputational harm, negative effects on our existing business and on our ability to attract and retain new customers, and increased potential
exposure to regulatory enforcement, litigation, and/or financial penalties for non-compliance. For example, in July 2020, the Court of Justice
of the European Union (“CJEU”) invalidated the Privacy Shield framework, which enabled companies to legally transfer data from the
European Economic Area (“EEA”) to the U.S. This ruling from the CJEU and recent rulings from various EU member state data protection
authorities have created complexity and uncertainty regarding processing and transfers of personal data from the EEA to the U.S. and certain
other countries outside the EEA.
Moreover, on June 4, 2021, the European Commission adopted new Standard Contractual Clauses (“SCCs”), which impose additional
obligations relating to personal data transfers out of the EEA. The new SCCs, and similar standard contractual clauses adopted in the UK,
may increase the legal risks and liabilities associated with cross-border data transfers, and result in material increased compliance and
operational costs. Following issuance of a U.S. Executive Order, a new framework, the EU-U.S. Data Privacy Framework (“DPF”) was
created. Following an adequacy decision issued by the European Commission on July 10, 2023, the DPF, along with a UK extension to the
DPF that allows the transfer of personal data from the UK to the U.S. (the “UK DPF Extension”), are available
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for companies to make use of to legitimize personal data transfers to the U.S. from the EEA and UK. We have certified to the U.S.
Department of Commerce that we adhere to the DPF and UK DPF Extension. However, the DPF and the UK DPF Extension may be subject
to legal challenges from privacy advocacy groups or others, and the European Commission's adequacy decision regarding the DPF provides
that the DPF will be subject to future reviews and may be subject to suspension, amendment, repeal, or limitations in scope by the European
Commission. More generally, uncertainty may continue about the legal requirements for transferring customer personal data to and from the
EEA, UK, and other regions, an integral process of our business. Other countries such as Russia, China, and India have passed or are
considering passing laws imposing varying degrees of restrictive data residency requirements, which have created additional costs and
complexity, and any new requirements may result in additional costs and complexity.
In addition, the UK has established its own domestic regime with the UK GDPR and amendments to the Data Protection Act. While the
UK GDPR so far mirrors the obligations in the GDPR and imposes similar penalties, the UK government is considering amending its data
protection legislation. If UK regulation of data protection diverges significantly from the EU, new obligations and data flow issues could
emerge, creating costs and complexity. Actual or alleged failure to comply with the GDPR or the UK GDPR can result in private lawsuits,
reputational damage, loss of customers, and regulatory enforcement actions, which can result in significant fines, including, under the GDPR,
fines of up to EUR 20 million (or GBP 17.5 million under the UK GDPR) or four percent (4%) of global revenue, whichever is greater.
Regulatory developments in the U.S. present additional risks. For example, the California Consumer Privacy Act (“CCPA”), as amended
by the California Privacy Rights Act (“CPRA”), gives California consumers, including employees, certain rights similar to those provided by
the GDPR, and also provides for statutory damages or fines on a per violation basis that could be very large depending on the severity of the
violation. Numerous other states have also enacted or are in the process of enacting or considering comprehensive state-level data privacy
and security laws, rules and regulations. Furthermore, the U.S. Congress is considering privacy legislation, and the U.S. Federal Trade
Commission continues to use its enforcement authority under Section 5 of the FTC Act against companies for privacy and cybersecurity
practices alleged to be unfair or deceptive, and may undertake its own privacy rule making exercise.
Globally, virtually every jurisdiction in which we operate has established its own frameworks governing privacy, data protection, and
cybersecurity with which we, and/or our customers, must comply. These laws and regulations often are more restrictive than those in the U.S.
Regulatory developments in these countries may require us to modify our policies, procedures, and data processing measures in order to
address requirements under these or other applicable privacy, data protection, or cybersecurity regimes, and we may face claims, litigation,
investigations, or other proceedings regarding them, initiated by private parties and governmental authorities, and may incur related liabilities,
expenses, costs, and operational losses. Our compliance efforts are further complicated by the fact that laws and regulations relating to
privacy, data protection, and cybersecurity around the world are rapidly evolving, may be subject to uncertain or inconsistent interpretations
and enforcement, and may conflict among various jurisdictions.
In addition to government activity, privacy advocacy and other industry groups have established or may establish various new,
additional, or different self-regulatory standards that may place additional burdens on us. Our customers may require us, or we may find it
advisable, to meet voluntary certifications or adhere to other standards established by them or third parties, such as the SSAE 18, SOC1,
and SOC2 audit processes. If we are unable to maintain such certifications, comply with such standards, or meet such customer requests, it
could reduce demand for our services and adversely affect our business.
Compliance with applicable laws and regulations relating to privacy, data protection, and cybersecurity may require changes in our
services, business practices, or internal systems that result in increased costs, lower revenue, reduced efficiency, or negative effects on our
ability to attract and retain customers in certain industries and foreign countries, which could adversely affect our business. The costs of
compliance with, and other obligations imposed by, these laws and regulations may require modification of our services, limit use and
adoption of our services, reduce overall demand for our services, lead to significant fines, penalties, or liabilities for actual or alleged
noncompliance, or slow the pace at which we close sales transactions, any of which could harm our business. Privacy, data protection, and
cybersecurity concerns, whether valid or not valid, may inhibit the market adoption, effectiveness, or use of our services, particularly in
certain industries and foreign countries.
We are subject to governmental export and import controls that could impair our ability to compete in international markets due to
licensing 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
economic and trade sanctions regulations established by the Treasury Department’s Office
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of Foreign Assets Control. Obtaining the necessary authorizations, including any required license, for a particular export or sale may be time-
consuming, is not guaranteed, and may result in the delay or loss of sales opportunities. The U.S. export control laws and economic
sanctions laws prohibit the export, re-export or transfer of specific products and services to U.S. embargoed or sanctioned countries, regions,
governments and persons. Even though we take precautions to prevent our solutions from being provided to U.S. sanctions targets, our
solutions could be sold by resellers or could be used by persons in sanctioned regions 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. In addition, if our resellers fail to obtain
appropriate import, export or re-export licenses or authorizations, we may also be adversely affected through reputational harm and
penalties.
In addition, various countries could enact laws that could limit our ability to distribute our solutions or could limit our customers’ ability to
implement or access our solutions in those countries. Changes in our solutions or changes in export and import regulations may create
delays in the introduction and sale of our solutions in international markets, prevent our customers with international operations from
accessing our solutions or, in some cases, prevent the export or import of our solutions to some countries, governments or persons
altogether. Any change in export or import regulations, economic sanctions or related laws, shift in the enforcement or scope of existing
regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of
our solutions, or in our decreased ability to export or sell our solutions to current or potential customers with international operations. Any
decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely affect our business, financial
condition and results of operations.
Changes in laws and regulations related to the internet and cloud computing or changes to internet infrastructure may diminish
the demand for our solutions, and could have a negative impact on our business.
The 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
or regulations affecting the use of the internet as a commercial medium. Regulators in some industries have also adopted and may in the
future adopt regulations or interpretive positions regarding the use of SaaS and cloud computing solutions. For example, some financial
services regulators have imposed guidelines for the use of cloud computing services that mandate specific controls or require financial
services enterprises to obtain regulatory approval prior to utilizing such software. Changes in these laws or regulations could require us to
modify our solutions in order to comply with these changes. In addition, government agencies or private organizations have imposed and
may impose additional taxes, fees, or other charges for accessing the internet or commerce conducted via the internet. These laws or
charges could limit the growth of internet-related commerce 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 protocols to handle increased demands of internet activity, security, reliability, cost, ease-
of-use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool has been adversely
affected by “viruses,” “worms,” and similar malicious programs and the internet 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 is adversely 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
internet neutrality, could decrease the demand for our products and increase our operating costs. The current legislative and regulatory
landscape regarding the regulation of the internet and, in particular, internet neutrality, in the U.S. is subject to uncertainty. The Federal
Communications Commission (“FCC”) had previously passed Open Internet rules in February 2015, which generally provided for internet
neutrality with respect to fixed and mobile broadband internet service. On December 14, 2017, the FCC voted to repeal Open Internet 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, repealed
the neutrality obligations imposed by the 2015 rules and granted providers of broadband internet access services greater freedom to make
changes to their services, including, potentially, changes that may discriminate against or otherwise harm our business. However, a number
of parties have appealed this order. The D.C. Circuit Court of Appeals recently upheld the FCC’s repeal, but ordered the FCC to reconsider
certain elements of the repeal; thus the future impact of the FCC's repeal and any changes thereto remains uncertain. In addition, in
September 2018, California enacted the California Internet Consumer Protection and Net Neutrality Act of 2018, making California the fourth
state to enact a state-level net neutrality law since the FCC repealed its nationwide regulations. This act mandated that all broadband
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provided in accordance with California's net neutrality requirements. The U.S. Department of Justice has sued to block the law going into
effect, and California has agreed to delay enforcement until the resolution of the FCC's repeal of the federal rules. A number of other states
are considering legislation or execution action that would regulate the conduct of broadband providers. In its recent decision on the FCC’s
repeal, the D.C. Circuit Court of Appeals also ruled that the FCC does not have the authority to bar states from passing their own net
neutrality rules. It is uncertain whether the FCC will argue that some state net neutrality laws are preempted by federal law and challenge
such state net neutrality laws on a case-by-case basis. We cannot predict whether the FCC order or state initiatives will be modified,
overturned or vacated by legal action. Additional changes in the legislative and regulatory landscape regarding internet neutrality, or
otherwise regarding the regulation of the internet, could also harm our business.
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
intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The
relevant taxing authorities may disagree with our determinations as to the value of assets sold or acquired or income and expenses
attributable to specific jurisdictions. If such a disagreement were to occur, and our position were not sustained, we could be required to pay
additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows, and lower
overall profitability of our operations. We believe that our financial statements reflect adequate reserves to cover such a contingency, but
there can be no assurances in that regard.
The enactment of legislation implementing changes in the U.S. and global taxation of international business activities or the
adoption of other tax reform policies could materially impact our financial position and results of operations.
Any changes in the U.S. or global taxation of our activities may increase our worldwide effective tax rate and adversely affect our
financial position and results of operations. For example, the Inflation Reduction Act includes, among other provisions, an alternative
minimum tax on adjusted financial statement income and a 1% excise tax on stock buybacks. Further, beginning in 2022, Section 174 of the
Code eliminates the right to deduct research and development expenditures and requires taxpayers to capitalize and amortize U.S. and
foreign research and development expenditures over five and fifteen years, respectively. However, recently proposed tax legislation, if
enacted, would restore the ability to deduct currently domestic research and development expenditures through 2025 and would retroactively
restore this benefit for 2022 and 2023. In addition, the Organization for Economic Cooperation and Development has proposed a global
minimum tax of 15%, which has been adopted by the EU, effective as of January 1, 2024. These and other proposed or implemented
changes in the U.S. and global taxation could adversely impact our financial position and results of operations.
Taxing authorities may successfully assert that we should have collected, or in the future should collect, sales and use, value-
added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our
results of operations.
Sales and use, value-added and similar tax laws and rates vary greatly by jurisdiction and are subject to change from time to time.
Some jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments,
penalties and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest or future
requirements may adversely affect our results of operations.
Risks Related to Our Intellectual Property
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 two patents and primarily rely on
copyright, trade secret and trademark laws, trade secret protection, and confidentiality or license agreements with our employees, customers,
partners and others to protect our intellectual property rights. However, the steps we take to protect our 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.
In the past, we have utilized demand letters as a means to assert and resolve claims regarding potential misuse of our proprietary or trade
secret information. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to
management, and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our
intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of
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our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and
adversely impact our business.
Lawsuits or other claims by third parties for alleged infringement of their proprietary rights could cause us to incur significant
expenses or liabilities.
There is considerable patent and other intellectual property development activity in our industry. Our success depends, in part, on not
infringing upon the intellectual property rights of others. From time to time, our competitors or other third parties may claim that our solutions
and underlying technology infringe or violate their intellectual property rights, and we may be found to be infringing upon such rights. We may
be unaware of the intellectual property rights of others that may cover some or all of our technology. Any claims or litigation could cause us to
incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty
payments, prevent us from offering our solutions or require that we comply with other unfavorable terms. We may also be obligated to
indemnify our customers or other companies in connection with any such litigation and to obtain licenses, modify our solutions, or refund
subscription fees, which could further exhaust 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 of subscription fees. Even if we were to prevail in the event of claims or litigation against us, any claim
or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and other
employees from our business operations. Such disputes could also disrupt our solutions, adversely impacting our customer satisfaction and
ability to attract customers.
We use open source software in our products, which could subject us to litigation or other actions.
We use open source software in our products and may use more open source software in the future. From time to time, there have
been claims challenging the use of open source software against companies that incorporate open source software into their products. As a
result, we could be subject to suits by parties claiming misuse of, or a right to compensation for, what we believe to be open source software.
Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote
additional research and development resources to change our products. In addition, if we were to combine our proprietary software products
with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code
of our proprietary software products. If we inappropriately use open source software, we may be required to re-engineer our products,
discontinue the sale of our products or take other remedial actions.
Risks Related to Ownership of Our Common Stock
The 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 in
response to various factors, some of which are beyond our control and may not be related to our operating performance. Factors that could
cause fluctuations in the market price of our common stock include the following:
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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 BlackLine, changes in financial estimates by any securities
analysts who follow BlackLine or our failure to meet these estimates or the expectations of investors;
ratings changes by any securities analysts who follow BlackLine;
announcements by us or our competitors of significant technical innovations, acquisitions, strategic relationships, joint ventures,
or capital commitments;
changes in operating performance and stock market valuations of other technology companies generally, or those in our industry
in particular;
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 perceived privacy, security, data protection, or cybersecurity incidents;
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actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
developments or disputes concerning our intellectual property, or our products or third-party proprietary rights;
announced or completed acquisitions of businesses or technologies by us or our competitors;
new laws or regulations, or new interpretations of existing laws or regulations applicable to our business;
any major change in our Board of Directors (the “Board”) or management;
sales of shares of our common stock by us or our stockholders;
issuances of shares of our common stock, including in connection with an acquisition or upon conversion of some or all of our
outstanding Notes (as defined below);
lawsuits threatened or filed against us; and
other events or factors, including instability in the banking and financial services sector, geopolitical events such as Russia's
invasion of Ukraine, incidents of terrorism, outbreaks of pandemic diseases, presidential elections, civil unrest, or responses to
these events.
In addition, the stock markets, and in particular the Nasdaq market on which our common stock is listed, have experienced extreme
price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies.
Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those
companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to
become the target of this type of litigation in the future, it could subject us to substantial costs, divert resources and the attention of
management, and adversely affect our business, results of operations, financial condition and cash flows.
Provisions of our corporate governance documents could make an acquisition of BlackLine more difficult and may impede
attempts by 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:
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we have authorized but unissued shares of undesignated preferred stock, the terms of which may be established and the shares
of which may be issued without stockholder approval, and which may include supermajority voting, special approval, dividend, or
other rights or preferences superior to the rights of stockholders;
we have a classified our Board 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
and restated certificate of incorporation by our stockholders requires the affirmative vote of the holders of at least 75% of the
voting power of 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 or for proposing
matters that can be acted upon by stockholders at stockholder meetings.
Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a takeover attempt that our
stockholders may find beneficial. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent
a transaction involving a change in control of BlackLine, including actions that our stockholders may deem advantageous, or negatively affect
the trading price of our common stock. These provisions could also discourage proxy contests and make it more difficult for you and other
stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
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
the development, operation, and expansion of our business, and do not anticipate
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declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the increase, if any,
of our stock price, which may never occur.
Our amended and restated bylaws designate a state or federal court located within the State of Delaware as the exclusive forum for
substantially all disputes between us and our stockholders, and also provide that the federal district courts will be the exclusive
forum for resolving any complaint asserting a cause of action arising under the Securities Act, each of which could limit our
stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the sole and
exclusive forum 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 any of our directors, officers or other employees to us or our stockholders, (3) any action arising pursuant to any provision of the
DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (4) any other action asserting a claim
that is governed by the internal affairs doctrine shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not
have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court having jurisdiction over indispensable
parties named as defendants and provided that this exclusive forum provision will not apply to suits brought to enforce any liability or duty
created by the Exchange Act.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple
jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated
bylaws also provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint
asserting a cause of action arising under the Securities Act. However, while the Delaware Supreme Court ruled in March 2020 that federal
forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware
law, there is uncertainty as to whether other courts will enforce our federal forum provision. If the federal forum provision is found to be
unenforceable, we may incur additional costs associated with resolving such matters.
Any person or entity purchasing or otherwise acquiring or holding any interest in any of our securities shall be deemed to have notice of
and consented to this provision. This exclusive forum provision in our amended and restated bylaws may limit a stockholder's ability to bring
a claim in a judicial forum of its choosing for disputes with us or any of our directors, officers, or other employees, which may discourage
lawsuits against us and our directors, officers, and other employees. If a court were to find the exclusive forum provision in our amended and
restated bylaws to be inapplicable or unenforceable in an action, we could incur additional costs associated with resolving such action in
other jurisdictions, which could harm our results of operations.
Risks Related to Our Outstanding Convertible Notes
Servicing our Notes may require a significant amount of cash and we may not have sufficient cash to settle conversions of the
Notes in cash, to repurchase the Notes upon a fundamental change, or to repay the principal amount of the Notes in cash at their
maturity, and our future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.
As of December 31, 2023, we had $250.0 million aggregate principal amount of our 0.125% Convertible Senior Notes due in 2024 (the
“2024 Notes”) outstanding and $1.150 billion aggregate principal amount of our 0.00% Convertible Senior Notes due in 2026 (the “2026
Notes” and, together with the 2024 Notes, the “Notes” or “convertible senior notes”) outstanding.
Holders of either series of the Notes will have the right to require us to repurchase all or a portion of such Notes upon the occurrence of
a fundamental change before the applicable maturity date at a repurchase price equal to 100% of the principal amount of such Notes to be
repurchased, plus accrued and unpaid interest or special interest, if any, as described in the applicable indenture governing such Notes. In
addition, upon conversion of the Notes of the applicable series, unless we elect to deliver solely shares of our common stock to settle such
conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of such
Notes being converted, as described in the applicable indenture governing such Notes. Moreover, we will be required to repay the Notes of
the applicable series in cash at their respective maturity unless earlier converted, redeemed, or repurchased. However, we may not have
enough available cash on hand or be able to obtain financing at the time we are required to make repurchases of such Notes surrendered
therefor or pay cash with respect to such series of Notes being converted or at their respective maturity. Our ability to repay or refinance the
Notes will depend on market conditions and our future performance, which is subject to economic, financial, competitive, and other factors
beyond our control. Further, if either series of the Notes convert and we elect to issue common stock in lieu of cash upon conversion, our
existing stockholders could suffer significant dilution.
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In addition, our ability to repurchase the Notes of the applicable series or to pay cash upon conversions of the Notes or at their
respective maturity may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase
such Notes at a time when the repurchase is required by the applicable indenture governing such Notes or to pay cash upon conversions of
such Notes or at their respective maturity as required by the applicable indenture governing such Notes would constitute a default under such
indenture. A default under such indenture or the fundamental change itself could also lead to a default under agreements governing our
existing and future indebtedness. Moreover, the occurrence of a fundamental change under the applicable indenture governing the Notes
could constitute an event of default under any such agreement. If the payment of the related indebtedness were to be accelerated after any
applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness and repurchase such series of Notes or pay
cash with respect to such series of Notes being converted or at maturity of such series of Notes.
Our current and future indebtedness may limit our operating flexibility or otherwise affect our business.
Our existing and future indebtedness could have important consequences to our stockholders and significant effects on our business.
For example, it could:
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•
•
•
make it more difficult for us to satisfy our debt obligations, including the Notes;
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing
the availability of our cash flows to fund working capital and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
restrict us from exploiting business opportunities;
place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements,
execution of our business strategy or other general purposes.
Any of the foregoing could have a material adverse effect on our business, results of operations or financial condition.
The conditional conversion feature of each series of the Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion feature of either series of Notes is triggered, holders of the Notes of such series will be entitled
under the applicable indenture governing the Notes to convert such Notes at any time during the specified periods at their option. As of
December 31, 2023, the conditional conversion features of the Notes were not triggered. If the conditional conversion feature of either series
of Notes is triggered and one or more holders of a series elect to convert their Notes, unless we elect to satisfy our conversion obligation by
delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle
a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. In addition, in certain circumstances, such as
conversions by holders or redemption, we could be required under applicable accounting rules to reclassify all or certain of the outstanding
principal of such series of Notes as a current rather than long-term liability, which would result in a material reduction of our net working
capital.
We are subject to counterparty risk with respect to the Capped Calls.
In connection with the issuance of the Notes, we entered into the Capped Calls with the counterparties with respect to each series of
Notes.
The counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with
respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions at
any time prior to the respective maturity of the Notes (and are likely to do so on each exercise date of the Capped Call). This activity could
also cause or prevent an increase or a decrease in the market price of our common stock.
In addition, global economic conditions have in the past resulted in the actual or perceived failure or financial difficulties of many
financial institutions. The counterparties to the Capped Calls are financial institutions and we will be subject to the risk that one or more of the
counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate, their obligations under the Capped Calls.
If a counterparty to one or more Capped Calls becomes subject to insolvency proceedings, we will become an unsecured creditor in those
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proceedings with a claim equal to our exposure at the time under such transaction. Our exposure will depend on many factors but, generally,
it will increase if the market price or the volatility of our common stock increases. Upon a default or other failure to perform, or a termination
of obligations, by a counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our
common stock. We can provide no assurances as to the financial stability or viability of the counterparties.
General Risk Factors
We may require additional capital to support business growth, and this capital may 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 business
challenges, such as refinancing needs, the need to develop new features or enhance our existing solutions, or to improve our operating
infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financing to
secure additional funds, or we may opportunistically decide to raise capital. If we raise additional funds through further issuances of equity or
convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity or convertible debt securities we
issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the
future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make
it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may
not be able to obtain additional financing or refinancing on terms favorable to us, or at all. Recently there has been a tightening of the credit
markets and rising interest rates, as well as instability in the financial services sector, which have negatively impacted the capital raising
environment. 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.
The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to
attract and 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 “Exchange
Act”) the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
the listing requirements of Nasdaq, and other applicable securities rules and regulations. Compliance with these rules and regulations
increases our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on
our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to
our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and
procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures
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 by
management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. Additionally, our
independent registered public accounting firm is required to attest to the effectiveness of our internal control over financial reporting pursuant
to Section 404. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our
management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results.
Although we have hired additional employees to assist us in complying with these requirements, we may need to hire more employees or
engage outside consultants, which will increase our operating expenses.
In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty
for public 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 practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We
intend to invest substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased
general and administrative expenses and a diversion of management’s time and attention from business operations to compliance activities.
If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to
ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business,
financial conditions, and operating results may be adversely affected.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our
stock price and trading volume could decline.
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The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish
about us. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common
stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or
unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of
us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and
trading volume to decline.
We may fail to maintain an effective system of internal control over financial reporting in the future and may not be able to
accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us
and the price of our common stock.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in
such internal controls. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness 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 one or more material weaknesses in our internal control over financial reporting, our management will be unable to assert that our
internal control over financial reporting is effective. Even if our management concludes that our internal control over financial reporting is
effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal
controls or the level at which our internal controls are documented, designed, implemented, or reviewed. If we are unable to assert that our
internal control over financial reporting is effective, or when required in the future, if our independent registered public accounting firm is
unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the
accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected, and we could
become subject to stockholder lawsuits, litigation or investigations by the stock exchange on which our securities are listed, the SEC, or other
regulatory authorities, which could require additional financial and management resources, and cause investor perceptions to be adversely
affected and potentially resulting in restatement of our financial statements for prior periods and a decline in the market price of our stock.
Natural disasters, climate change, and other events beyond our control could harm our business.
Natural disasters, climate change, political instability, or other catastrophic events may cause damage or disruption to our operations,
international commerce, and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to
interruption by natural disasters, climate-related events, pandemics, terrorism, political unrest, geopolitical instability, war, such as the war in
Ukraine, and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could
make it difficult or impossible for us to deliver our solutions to our customers, could decrease demand for our solutions, and could cause us
to incur substantial expense. The majority of our research and development activities, corporate headquarters, information technology
systems and other critical business operations are located in California, which has experienced, and is projected to continue to experience,
major earthquakes, floods, droughts, heat waves, wildfires, and power shutoffs associated with wildfire prevention. Significant recovery time
could be required to resume operations and our business could be harmed in the event of a major earthquake or other catastrophic event.
Our insurance may not be sufficient to cover related losses or additional expenses that we may sustain. In addition, we may be subject to
increased regulations, reporting requirements, standards, or expectations regarding the environmental impacts of our business, and failure to
comply with such regulations, requirements, standards or expectations could adversely affect our reputation, business or financial
performance.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity is a key component of BlackLine’s overall cross-functional approach to risk management. Our cybersecurity risk
management practices are integrated into our overall risk management practices, and cybersecurity risks are among the core enterprise risks
identified for oversight by our Board through our annual enterprise risk assessment. Our cybersecurity policies and practices are designed
with the cybersecurity framework of the National Institute of Standards and Technology and certain other applicable industry standards in
mind, and
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BlackLine maintains an information security management system, which is certified against certain international standards, such as ISO
27001 and ISO 27017.
Our cybersecurity program includes:
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•
•
•
•
•
Vigilance: We maintain a global cybersecurity threat operation that endeavors to detect, contain, and respond to cybersecurity
threats and incidents in a prompt and effective manner with the goal of minimizing disruptions to the business.
Collaboration: We have established collaboration mechanisms with public and private entities, including intelligence and
enforcement agencies, industry groups, and third-party service providers to identify and assess cybersecurity risks.
Systems Safeguards: We deploy technical safeguards that are designed to protect our information systems from cybersecurity
threats, including firewalls, intrusion detection systems, anti-malware functionality, access controls, and ongoing vulnerability
assessments.
Third-Party Management: We maintain a risk-based approach to identifying and overseeing cybersecurity risks with respect to
third parties, including third parties who provide solutions we rely upon for our security measures. This includes contractually
obligating third-party service providers with access to our systems or processing sensitive data on our behalf to implement and
maintain reasonable security measures in connection with their work with us, and to promptly report any suspected security
breach that may affect BlackLine.
Education: Employees outside of our corporate information security organization also have a role in our cybersecurity defenses,
which we believe improves our cybersecurity. We provide training upon onboarding, and annually thereafter, for all personnel
regarding cybersecurity threats, with additional role-based security training as applicable. We also provide periodic cybersecurity
newsletters and updates to all employees, and have a phishing awareness program that includes monthly simulations, and we
periodically host tabletop exercises with management and other employees to practice rapid cyber incident response.
Incident Response Planning: We have established and maintain an incident response plan that addresses our response to
suspected cybersecurity incidents and is tested periodically.
Communication and Coordination: We utilize a cross-functional approach to addressing the risk from cybersecurity threats,
involving management personnel from the information security, technology, operations, legal, risk management, internal audit,
and other key business functions, as well as members of our Board and the Audit Committee of the Board (the “Audit
Committee”) and Technology and Cybersecurity Committee of the Board (the “Technology and Cybersecurity Committee”)
regarding cybersecurity threats and incidents.
Governance: The Board’s oversight of cybersecurity risk management is supported by the Audit Committee, which regularly
interacts with our risk management function and Chief Information Security Officer (“CISO”). In February 2024, the Board formed
a standing Technology and Cybersecurity Committee, which is comprised of independent members of the Board and assists the
Board in fulfilling its oversight responsibilities with respect to risks relating to our information security, data privacy and disaster
recovery capabilities.
A key part of our strategy for managing risks from cybersecurity threats is the ongoing assessment and testing of our processes and
practices through auditing, assessments, tabletop exercises, and other exercises focused on evaluating effectiveness. We periodically
engage third parties to perform assessments on our cybersecurity measures, including information security maturity assessments and
independent reviews of our information security control environment and operating effectiveness. The results of such assessments and
reviews are reported to the Board, the Audit Committee, and the newly formed Technology and Cybersecurity Committee, and we make
adjustments to our cybersecurity processes and practices as necessary based on the information provided by the third-party assessments
and reviews.
The Audit Committee and the Technology and Cybersecurity Committee are responsible for oversight relating to cybersecurity. The
Board and the Audit Committee regularly receive (and the newly formed Technology and Cybersecurity Committee will receive) presentations
and reports on cybersecurity risks from the CISO, which address a wide range of topics including, for example, recent developments,
evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends, and
cybersecurity considerations arising with respect to our peers and vendors. Our incident response process includes escalation of potentially
material cybersecurity incidents to relevant members of our executive management team. The Board, the Audit Committee, and the newly
formed Technology and Cybersecurity Committee, are updated as appropriate.
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Periodically, the Audit Committee discusses our approach to cybersecurity risk management with our CISO. Our Technology and
Cybersecurity Committee will receive regular reports from our CISO as part of its assessment of our cybersecurity threat landscape, and the
quality and effectiveness of our information security programs.
Our CISO is the member of our management who is principally responsible for overseeing our cybersecurity risk management program,
in partnership with other business leaders across BlackLine. She has over 15 years of experience as a chief information security officer
responsible for enterprise-wide oversight of information security programs. She holds CISSP and CISM certifications, and a BS in Computer
Science. She leads a team of information security professionals, and works in coordination with the Chief Information Officer, the Chief Legal
and Administrative Officer, the Senior Vice President, Cloud Engineering and Operations, and other members of management.
The CISO, in coordination with the other members of the executive management team, works collaboratively across BlackLine to
implement programs designed to protect our information systems from cybersecurity threats and to promptly respond to cybersecurity
incidents. To facilitate the success of such programs, we designate certain employees as security champions throughout BlackLine to
respond to cybersecurity incidents in accordance with our incident response plan. Through communications with these employees, the CISO
monitors the prevention, detection, mitigation, and remediation of cybersecurity incidents, and reports such incidents to the Board, the Audit
Committee, and the Technology and Cybersecurity Committee, when appropriate, as discussed above.
As of the date of this report, cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially
affected BlackLine, including its business strategy, results of operations or financial condition. Notwithstanding our investment in
cybersecurity, however, we may not be successful in identifying a cybersecurity risk or preventing or mitigating a cybersecurity incident or
product security vulnerability that could have a material adverse effect on our business, results of operations, or financial condition.
We are at risk for cybersecurity breaches and incidents, including as a result of third-party action, employee, vendor or contractor error,
cyberattacks (including from nation states and affiliated actors) and other forms of hacking, malfeasance, ransomware, and other malicious
software, or other factors. If our security controls are breached or circumvented, or unauthorized or inadvertent access to, modification to, or
processing of customer, employee, or other confidential data otherwise occurs, our software solutions may be perceived as insecure, or may
become unavailable or inaccessible to our end users. As a result, we may lose existing customers or fail to attract new customers, our
business may be harmed, and we may incur significant liabilities. These and other risks could affect BlackLine, including our business
strategy, results of operations, or financial condition. For more detailed information about these and other cybersecurity risks, please see Part
I, Item 1A, “Risk Factors”, including the risk factor entitled “If our security controls are breached or unauthorized, or inadvertent access to
customer, employee or other confidential data is otherwise obtained, our software solutions may be perceived as insecure, we may lose
existing customers or fail to attract new customers, our business may be harmed and we may incur significant liabilities.”
Item 2. Properties
Our principal executive offices are located in Woodland Hills, California where we occupy approximately 89,000 square feet of space
under a lease that was extended for five years and now expires in January 2029. We have additional U.S. lease offices in Pleasanton,
California; New York, New York; and Westport, Connecticut. We also have international office locations in Australia, Canada, France,
Germany, India, Japan, the Netherlands, Poland, Romania, Singapore, and the United Kingdom. We believe that our properties are generally
suitable to 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 readily available on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, we may be subject to legal proceedings, including claims, litigation, investigations, and inquiries arising in the
ordinary course of business. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the
form of letters and other forms of communication. As of the date of this Annual Report on Form 10-K for the year ended December 31, 2023,
we are not a party to any litigation the outcome of which, if determined adversely 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 Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Our Common Stock and Related Stockholder Matters
Our common stock trades on the Nasdaq Global Select Market under the symbol “BL” since October 28, 2016. Prior to that time, there
was no public market for our common stock.
Holders of Record
At February 15, 2024, there were 3 shareholders of record. The number of record holders does not include beneficial holders who hold
their shares in “street name,” meaning that the shares are held for their accounts by a broker or other nominee. Accordingly, we believe that
the total number of beneficial holders is higher than the number of our shareholders of record.
Dividend Policy
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all of our future earnings, if
any, to finance our operations and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future
determination as to the declaration and payment of dividends will be at the discretion of our Board and will depend on then-existing
conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other
factors our Board may deem relevant.
Stock Price Performance Graph
This 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 under that 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 the Securities Act.
The following graph compares (i) the cumulative total stockholder return on our common stock with (ii) the cumulative total return of the
S&P 500 Index and (iii) the cumulative total return of the S&P Software & Services Select Industry Index (SPSISS), all over the period from
December 31, 2018 through December 31, 2023, assuming the investment of $100 in our common stock and in both of the other indices on
December 31, 2018 and the reinvestment of dividends. The graph uses the closing market price on December 31, 2018 of $40.95 per share
as the initial value of our common stock. As discussed above, we have never declared or paid a cash dividend on our common stock and do
not anticipate declaring or paying a cash dividend in the foreseeable future.
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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. “Risk
Factors.”
Unregistered Sales of Equity Securities
None.
Use of Proceeds
None.
Issuer Purchases of Equity Securities
None.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read together with the financial statements and
the related notes set forth in Item 8, “Financial Statements and Supplementary Data.” The following discussion also contains forward-looking
statements, which are based upon current plans, expectations, and beliefs. These statements involve risks and uncertainties. See Part I,
“Special Note Regarding Forward-Looking Statements” for a discussion of the forward-looking statements contained below and Part I,
Item 1A, “Risk Factors” for a discussion of certain risks that could cause our actual results to differ materially from the results anticipated in
such forward-looking statements.
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for fiscal 2023 and
fiscal 2022. For the comparison of fiscal 2022 and fiscal 2021, see Management's Discussion and Analysis of Financial Condition and
Results of Operations in Part II, Item 7 of our 2022 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on
February 23, 2023.
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Overview
We have created comprehensive cloud-based solutions designed to transform and modernize accounting and finance operations for
midsize and enterprise organizations in all industries globally. Our secure, scalable solutions transform critical processes, including financial
close, intercompany accounting, invoice-to-cash, and consolidation. By introducing software that unifies critical data and enables process
orchestration and automation, we empower accounting and finance professionals to improve the integrity of their financial reporting, reduce
time spent on manual work, accelerate cash flows, and redeploy resources to focus on analysis and business partnership.
At December 31, 2023, we had 386,814 individual users across 4,398 customers. Additionally, we continue to build strategic
relationships with technology vendors, professional services firms, business process outsourcers, and resellers.
We are a holding company and conduct our operations through our wholly-owned subsidiary, BlackLine Systems, Inc. (“BlackLine
Systems”). On September 3, 2013, we acquired BlackLine Systems, and outside investors acquired a controlling interest in us, which we
refer to as the “2013 Acquisition.” The 2013 Acquisition was accounted for as a business combination under GAAP and resulted in a change
in accounting basis as of the date of the 2013 Acquisition.
Our cloud-based solutions include Account Reconciliations, Transaction Matching, Task Management, Financial Reporting Analytics,
Journal Entry, Variance Analysis, Consolidation Integrity Manager, Compliance, Smart Close for SAP, BlackLine Cash Application, Credit &
Risk Management, Collections Management, Disputes & Deductions Management, Team & Task Management, AR Intelligence, Electronic
Invoicing & Compliance, Intercompany Create, Intercompany Balance and Resolve, and Intercompany Net and Settle. These solutions are
offered to customers as scalable solutions that support critical record-to-report and invoice-to-cash processes.
We derived approximately 94% of our revenue from subscriptions to our cloud-based software platform and approximately 6% from
professional services for the year ended December 31, 2023. Our subscription contracts have initial non-cancellable terms of one year to
three years with renewal options. The majority of new contracts in 2023 and 2022 had an initial term of three years. We price our
subscriptions based on a number of factors, primarily the number of users having access to the products and the number of products
purchased by the customer. We typically invoice customers annually in advance for subscriptions, which is initially recorded as deferred
revenue and recognized ratably 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 primarily of implementation and consulting services. With the exception of our intercompany accounting
solutions acquired from the FourQ Acquisition, our product offerings are available for immediate use on our platform after granting access to
a new customer. We typically help customers implement our solutions, and we also provide consulting services to help customers optimize
the use of our products. We invoice customers for our consulting services on a time-and-materials basis and recognize that revenue as
services are performed. A limited number of our customers are provided professional services for a fixed fee which we invoice in advance
and is initially recorded as deferred revenue and recognized on a proportional-performance basis as the services are rendered.
We sell our solutions primarily through our direct sales force, which leverages our relationships with technology vendors, professional
services firms and business process outsourcers. In particular, our solution integrates with SAP’s ERP solutions, and SAP is part of the
reseller channel that we use in the ordinary course of business. SAP has the ability to resell our solutions as SolEx, for which we receive a
percentage of the revenues. We also have an agreement with Google Cloud in which we collaborate with them on joint selling and go-to-
market activities and bring enhanced automation solutions for finance and accounting to new and existing customers.
Our ability to maximize the lifetime value of our customer relationships will depend, in part, on the willingness of customers to purchase
additional user licenses and products from us. We rely on our sales and customer success teams to support and grow our existing customers
by maintaining high customer satisfaction and educating customers on the value all our products provide.
The length of our sales cycle depends on the size of a potential customer and contract, as well as the type of solution or product being
purchased. The sales cycle for our global enterprise customers is generally longer than that of our midsize customers. In addition, the length
of the sales cycle tends to increase for larger contracts and for more complex, strategic products like Intercompany Financial Management.
As we continue to focus on 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
40
quarter. This can be attributed to buying patterns typical in the software industry. As the terms of most of our customer agreements are
measured in full year increments, agreements initially entered into during the fourth quarter or last month of any quarter will generally come
up for renewal at that same time in subsequent years. This seasonality is reflected in our revenues, though the impact to overall annual or
quarterly revenues is minimal due to the fact that we recognize subscription revenue ratably over the term of the customer contract.
For the years ended December 31, 2023, 2022, and 2021, we had revenues totaling $590.0 million, $522.9 million, and $425.7 million,
respectively. We generated net income attributable to BlackLine, Inc. of $52.8 million and incurred net losses attributable to BlackLine, Inc. of
$29.4 million, and $115.2 million, for the years ended December 31, 2023, 2022, and 2021, respectively.
Global Macroeconomic Factors
Our operating results may vary based on the impact of changes in our industry or the global economy on us or our customers. General
macroeconomic conditions, such as a recession or rising inflation rates, an economic downturn in the U.S. or internationally, adverse
business conditions and liquidity concerns, or bank failures or instability in the financial services sector, has and could continue to adversely
affect demand for our products and make it difficult to accurately forecast and plan our future business activities. In recent quarters, as a
result of economic uncertainty, we have seen customers delay and defer purchasing decisions, which has adversely impacted our near-term
demand.
Acquisition of Data Interconnect
On September 12, 2023, we completed the DI Acquisition for cash consideration of $11.4 million, which was paid at the closing of the
acquisition. The DI Acquisition enhances our existing accounts receivable automation solution capabilities through EIPP. Transaction-related
costs, which include, but are not limited to, accounting, legal, and advisory fees related to the transaction, totaled approximately $1.2 million
and were expensed as incurred during the year ended December 31, 2023.
BlackLine accounted for the transaction as a business combination using the acquisition method of accounting. The total purchase
price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair
values on the acquisition date. The purchase price allocation was finalized as of the filing date of this Annual Report on Form 10-K.
Acquisition of FourQ
On January 26, 2022, we completed the FourQ Acquisition and paid with cash consideration of $160.2 million upon closing of the
acquisition. In addition, upon certain earnout conditions being met, contingent cash consideration of up to $73.2 million is payable. During the
years ended December 31, 2023 and 2022, and due to a revision of estimates, we decreased the fair value of the FourQ contingent
consideration and reversed expense of $33.5 million and $22.4 million, respectively. Refer to “Note 16 - Contingent Consideration” for
additional information.
With the FourQ Acquisition, we seek to enhance our existing intercompany accounting automation capabilities by driving end-to-end
automation of traditionally manual intercompany accounting processes and further accelerating our larger, long-term plan for transforming
and modernizing finance and accounting. This acquisition was not a significant acquisition under Regulation S-X, and the purchase
accounting allocation is final.
Restructuring Costs
Fiscal 2023 Restructuring Program
On August 23, 2023, we announced a restructuring plan that is designed to support our growth, scale, and profitability objectives. As
part of the restructuring, we reduced our global workforce by approximately 9.0%, or 166 total employee positions. Restructuring costs
related to the August 2023 restructuring consisted of one-time termination benefits that were primarily incurred in the third quarter of fiscal
2023. Refer to “Note 12 - Restructuring Costs” for additional information.
We anticipate annual gross cost savings of approximately $28.0 million to be realized from the restructuring plan by year-end 2024. We
expect to make selective investments designed to enable growth while balancing our efforts to drive cost efficiency.
Fiscal 2022 Restructuring Program
On December 7, 2022, we announced our decision to commit to a restructuring plan that was designed to focus on key growth
priorities. Restructuring costs related to the December 2022 restructuring consisted of one-time termination benefits that were primarily
incurred in the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023. Refer to “Note 12 - Restructuring Costs” for additional
information.
41
We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance,
identify trends affecting our business, formulate financial projections, and make strategic decisions.
Key Metrics
Dollar-based net revenue retention rate
Number of customers
Number of users
Year Ended December 31,
2023
106 %
4,398
386,814
2022
107 %
4,188
366,522
2021
109 %
3,825
328,389
Dollar-based net revenue retention rate. We believe that dollar-based net revenue retention rate is an important metric to measure
the long-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 from which we generated subscription revenue in the year prior to the calculation, divided by the implied monthly
subscription and support revenue one year prior to the date of calculation for that same customer base. This calculation does not reflect
implied monthly subscription and support revenue for new customers added during the one-year period but does include the effect of
customers who terminated during the period. We define implied 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. At December 31, 2023, our dollar-based net revenue retention rate declined
marginally from the year ended December 31, 2022 due to a more moderate pace of acquiring customer accounts. Our ability to maximize
the lifetime value of our customer relationships will depend, in part, on the willingness of the customer to purchase additional user licenses
and products from us. We rely on our customer success and sales teams to support and grow our existing customers by maintaining high
customer satisfaction and educating the customer on the value all our 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 of our business. We define a customer as a company that contributes to our subscription and support revenue as of the measurement
date. In situations where an organization 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 any incremental increase in revenue, such customer continues to be treated as a single customer. For the years
ended December 31, 2023, 2022, and 2021, 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, we
believe the total number of users is an indicator of the growth of our business. While the fees for the majority of the products we sell are user-
based, we are seeing an increasing volume of transactions for our non-user based strategic products, such as EIPP, Transaction Matching,
Intercompany, and BlackLine Cash Application.
Revenues
Key Components of our Results of Operations
Subscription and support. Our subscription contracts have initial non-cancellable terms of one year to three years with renewal
options. The majority of new contracts in 2023 and 2022 had an initial term of three years. Fees are based on a number of factors, including
the solutions subscribed to by the customer and the number of users having access to the solutions. The first year of subscription fees are
typically payable within 30 days after execution of a contract, and thereafter upon renewal. We initially record the subscription fees as
deferred revenue and recognize revenue ratably over 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 or subscription to products upon renewal of their arrangement. Revenues from
subscriptions to our cloud-based software platform composed approximately 94% of our revenues for the year ended December 31, 2023.
Subscription and support revenues also include revenues associated with sales of on-premise software licenses and related support,
but we no longer develop any new applications or functionality for our legacy on-premise software, and anticipate that this component of our
revenues will continue to decline relative to total revenue.
42
Professional services. We offer our customers implementation and consulting services. With the exception of our intercompany
accounting solutions acquired from the FourQ Acquisition, our product offerings are available for immediate use on our platform after granting
access to a new customer. We typically help customers implement our solutions, and we also provide consulting and training services to help
customers optimize the use of our products. These services are considered distinct performance obligations. Professional services do not
result in significant customization of the subscription service. We apply the practical expedient to recognize professional services revenue
when we have the right to invoice based on time and materials incurred. A limited number of our customers are provided professional
services for a fixed fee, which is initially recorded as deferred revenue and recognized on a proportional-performance basis as the services
are rendered. Professional services revenues composed approximately 6% of our revenues for the year ended December 31, 2023.
For a description of our revenue accounting policies, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Critical Accounting Estimates.”
Cost of Revenues
Subscription and support cost of revenues. Subscription and support cost of revenues primarily consists of amortization of acquired
developed technology costs, salaries, benefits, and stock-based compensation associated with our hosting operations and support
personnel, amortization of capitalized internal-use software costs, and data center costs related to hosting our cloud-based software. 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, benefits
and stock-based compensation associated with our implementation personnel. These costs are expensed as incurred when the services are
performed. We also allocate a portion of overhead to professional services cost of revenues.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of compensation and employee benefits, including stock-based
compensation of sales and marketing personnel and related sales support teams, sales and partner commissions, marketing events,
advertising costs, computer software-related costs, travel, trade shows, other marketing materials, transaction-related costs, and allocated
overhead. Sales and marketing expenses also include amortization of customer relationship intangible assets and impairment of cloud
computing implementation costs. We defer sales and partner commissions and amortize them over an estimated period of benefit of five
years. We expect sales and marketing expenses to increase in 2024 primarily due to investments in strategic initiatives to support sales
enablement, product, and partner initiatives.
Research and development. Research and development expenses are comprised primarily of salaries, benefits and stock-based
compensation associated with our engineering, product and quality assurance personnel, and transaction-related costs. Research and
development expenses also include third-party contractors and supplies, computer software-related costs and allocated overhead. Other
than software development costs that qualify for capitalization, as discussed above, research and development costs are expensed as
incurred. We expect research and development costs to increase in 2024 due to incremental headcount primarily to support our 2024 product
roadmap and investments in strategic initiatives, including AI.
General and administrative. General and administrative expenses consist primarily of personnel costs associated with our executive,
finance, legal, human resources, compliance, and other administrative personnel, as well as accounting and legal professional fees, other
corporate-related expenses and allocated overhead. General and administrative expenses also include amortization of trade name intangible
assets, the change in the fair value of contingent consideration, transaction-related costs, and impairment of cloud computing implementation
costs. We expect general and administrative costs to increase in 2024 for strategic initiatives and for investments primarily in corporate IT to
support scale and automation activities.
Restructuring costs. Restructuring costs consist of one-time termination benefits. Refer to “Note 12 - Restructuring Costs” for
additional information.
Interest income. Interest income primarily consists of earnings on our cash and cash equivalents and our marketable securities.
Interest expense. Interest expense consists primarily of interest expense associated with our Notes issued in August 2019 and March
2021.
Provision for (benefit from) income taxes.
We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions. We use the liability method of
accounting for income taxes. Under the liability method, deferred taxes are determined
43
based on the temporary differences between the financial statement and tax bases of assets and liabilities, using tax rates expected to be in
effect during the years in which the bases differences are expected to reverse.
We record a valuation allowance against our deferred tax assets to the extent that realization of the deferred tax assets, including
consideration of our deferred tax liabilities, is not more likely than not. For the year ended December 31, 2023, for both federal and state
income taxes, we have recorded a valuation allowance against our deferred tax assets because of our cumulative operating losses since
inception, as we believe that the realization of the deferred tax assets is currently not more likely than not. We have also recorded a valuation
allowance against certain foreign deferred tax assets.
In addition to our results determined in accordance with GAAP, we believe the non-GAAP measures below are useful to us and our
investors in evaluating our business. These non-GAAP financial measures are useful because they provide consistency and comparability
with our past performance, facilitate period-to-period comparisons of operations and facilitate comparisons with other peer companies, many
of which use similar non-GAAP financial measures to supplement their GAAP results.
Non-GAAP Financial Measures
Year Ended December 31,
2023
2022
GAAP gross profit
GAAP gross margin
GAAP operating income (loss)
GAAP operating margin
GAAP net income (loss) attributable to BlackLine, Inc.
Diluted net income (loss) per share attributable to BlackLine, Inc.
Non-GAAP gross profit
Non-GAAP gross margin
Non-GAAP operating income
Non-GAAP operating margin
Non-GAAP net income attributable to BlackLine, Inc.
Diluted non-GAAP net income per share attributable to BlackLine, Inc.
$
$
$
$
$
$
$
$
(in thousands, except percentages)
$
443,203
393,553
75.1 %
14,348
2.4 %
52,833
0.81
$
$
$
75.3 %
(56,198)
(10.7 %)
(29,391)
(0.49)
Year Ended December 31,
2023
2022
(in thousands, except percentages)
468,559
79.4 %
97,517
16.5 %
145,195
1.96
$
$
$
$
414,818
79.3 %
31,998
6.1 %
46,243
0.64
Non-GAAP Gross Profit and Non-GAAP Gross Margin. Non-GAAP gross profit is defined as GAAP revenues less GAAP cost of
revenue adjusted for amortization of acquired developed technology, transaction-related costs (including, but not limited to, accounting, legal,
and advisory fees related to the transaction, as well as transaction-related retention bonuses), and stock-based compensation. Non-GAAP
gross margin is defined as non-GAAP gross profit divided by GAAP revenues. We believe that presenting non-GAAP gross profit and non-
GAAP gross margin is useful to investors as it eliminates the impact of certain non-cash expenses and allows a direct comparison between
periods.
Non-GAAP Income (Loss) from Operations and Non-GAAP Operating Margin. Non-GAAP income (loss) from operations is defined as
GAAP income (loss) from operations adjusted for amortization of intangible assets, stock-based compensation, change in fair value of
contingent consideration, transaction-related costs, legal settlement gains or costs, impairment of cloud computing implementation costs and
restructuring costs. Non-GAAP operating margin is defined as non-GAAP income from operations divided by GAAP revenues. We believe
that presenting non-GAAP income (loss) from operations and non-GAAP operating margin is useful to investors as it eliminates the impact of
items that have been impacted by BlackLine’s acquisitions and other related costs in order to allow a direct comparison of income (loss) from
operations between all periods presented.
Non-GAAP Net Income (Loss) Attributable to BlackLine and Diluted Non-GAAP Net Income (Loss) Per Share Attributable to BlackLine,
Inc. Non-GAAP net income (loss) attributable to BlackLine is defined as GAAP net income
44
(loss) attributable to BlackLine adjusted for the impact of the provision for (benefit from) income taxes related to acquisitions, amortization of
intangible assets, stock-based compensation, amortization of debt issuance costs from our convertible notes, change in fair value of
contingent consideration, transaction-related costs, legal settlement gains or costs, impairment of cloud computing implementation costs,
restructuring costs, and the adjustment to the redeemable non-controlling interest to the redemption amount. Diluted non-GAAP net income
per share attributable to BlackLine, Inc. includes the adjustment for shares resulting from the elimination of stock-based compensation. We
believe that presenting non-GAAP net income (loss) attributable to BlackLine is useful to investors as it eliminates the impact of items that
have been impacted by our acquisitions and other related costs to allow a direct comparison of net income (loss) between all periods
presented.
Reconciliation of Non-GAAP Financial Measures
The following table presents a reconciliation of gross profit, gross margin, and net income (loss), the most comparable GAAP
measures, to non-GAAP gross profit, non-GAAP gross margin, and non-GAAP net income:
Non-GAAP Gross Profit:
Gross profit
Amortization of acquired developed technology
Stock-based compensation
Transaction-related costs
Total non-GAAP gross profit
(1)
Gross margin
Non-GAAP gross margin
Non-GAAP Operating Income:
Operating income (loss)
Amortization of intangible assets
Stock-based compensation
Change in fair value of contingent consideration
Transaction-related costs
Legal settlement costs
Impairment of cloud computing implementation costs
Restructuring costs
Total non-GAAP operating income
(1)
GAAP operating margin
Non-GAAP operating margin
Non-GAAP Net Income Attributable to BlackLine, Inc.:
Net income (loss) attributable to BlackLine, Inc.
Benefit from income taxes
Amortization of intangible assets
Stock-based compensation
Amortization of debt issuance costs
Change in fair value of contingent consideration
Transaction-related costs
Legal settlement costs
(1)
Impairment of cloud computing implementation costs
Restructuring costs
Adjustment to redeemable non-controlling interest
Total non-GAAP net income attributable to BlackLine, Inc.
Year Ended December 31,
2023
2022
(in thousands, except percentages)
$
$
$
$
$
$
443,203
12,438
12,440
478
468,559
75.1 %
79.4 %
14,348
20,608
80,068
(33,549)
5,078
—
—
10,964
97,517
2.4 %
16.5 %
52,833
(1,196)
20,608
79,588
5,535
(33,549)
5,078
—
—
10,964
5,334
145,195
$
$
$
$
$
$
393,553
11,315
8,595
1,355
414,818
75.3 %
79.3 %
(56,198)
19,731
75,884
(35,130)
16,831
1,709
5,330
3,841
31,998
(10.7 %)
6.1 %
(29,391)
(13,634)
19,731
75,576
5,511
(35,130)
16,831
1,709
5,330
3,841
(4,131)
46,243
(1)
Beginning in 2023, includes amortization related to stock-based compensation that was capitalized in capitalized software development
costs in previous periods and totaled $2.1 million for the year ended December 31, 2023.
45
Results of Operations
The following tables set forth selected historical consolidated statements of operations data, which should be read in conjunction with
Critical Accounting Estimates, Liquidity and Capital Resources, and Contractual Obligations and Commitments included in this Item 7, as well
as Quantitative and Qualitative Disclosures About Market Risk and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-K.
On August 23, 2023 and December 7, 2022, respectively, we announced our decision to commit to restructuring plans designed to
focus on key growth priorities. Refer to “Note 12 - Restructuring Costs” for additional information on these events.
Consolidated statements of operations information was as follows:
Revenues
Subscription and support
Professional services
Total revenues
Cost of revenues
Subscription and support
Professional services
Total cost of revenues
Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Restructuring costs
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income
Interest expense
Other income, net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) attributable to redeemable non-controlling interest
Adjustment attributable to redeemable non-controlling interest
Net income (loss) attributable to BlackLine, Inc.
Revenues
Subscription and support
Professional services
Total revenues
$
$
46
Year Ended December 31,
2023
2022
(in thousands)
$
555,516 $
34,480
589,996
121,308
25,485
146,793
443,203
243,154
103,207
71,530
10,964
428,855
14,348
52,059
(5,898)
46,161
60,509
1,450
59,059
892
5,334
52,833 $
$
491,187
31,751
522,938
102,132
27,253
129,385
393,553
256,862
108,893
80,155
3,841
449,751
(56,198)
14,637
(5,850)
8,787
(47,411)
(13,520)
(33,891)
(369)
(4,131)
(29,391)
Year Ended December 31,
2023
2022
Change
$
%
555,516 $
34,480
589,996 $
(in thousands, except percentages)
64,329
2,729
67,058
491,187 $
31,751
522,938 $
13 %
9 %
13 %
Dollar-based net revenue retention rate
Number of customers
Number of users
Year Ended December 31,
2023
106 %
4,398
386,814
2022
107 %
4,188
366,522
The increase in revenues for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily due
to a net increase in the number of customers and users. The total number of customers and total number of users increased by 5% and 6%,
respectively, during the year ended December 31, 2023.
Cost of revenues
Subscription and support
Professional services
Total cost of revenues
Gross margin
Year Ended December 31,
2023
2022
Change
$
%
$
$
121,308
25,485
146,793
(in thousands, except percentages)
$
$
102,132
27,253
129,385
$
$
19,176
(1,768)
17,408
75.1 %
75.3 %
19 %
(6)%
13 %
The increase in cost of revenues for the year ended December 31, 2023, compared to the year ended December 31, 2022, was
primarily due to the following:
•
•
•
•
•
•
•
$10.6 million net increase in computer software-related costs and data center expenses primarily due to higher spend on cloud
hosting services related to the migration of new and existing customers to the Google Cloud Platform, as well as an increase in
cloud hosting services;
$5.5 million increase in amortization of developed technology due to net additions to software placed into service;
$1.4 million increase in depreciation and amortization primarily due to the addition of developed technology from the FourQ
Acquisition and DI Acquisition;
$0.6 million increase in salaries, benefits, and stock-based compensation; and
$0.4 million increase in travel and entertainment; partially offset by
$0.9 million decrease in transaction-related costs related to the FourQ Acquisition; and
$0.3 million decrease in professional fees.
Sales and marketing
Sales and marketing
Percentage of total revenues
Year Ended December 31,
2023
2022
Change
$
%
$
243,154
(in thousands, except percentages)
$
256,862
(13,708)
$
(5)%
41.2 %
49.1 %
The decrease in sales and marketing expenses for the year ended December 31, 2023, compared to the year ended December 31,
2022, was primarily due to the following:
•
•
•
•
•
•
$13.6 million decrease in salaries, benefits, and stock-based compensation;
$3.4 million decrease from impairment of cloud computing implementation costs that were incurred in the prior year comparable
period;
$2.0 million decrease in transaction-related costs related to the FourQ Acquisition; and
$1.0 million decrease in professional fees; partially offset by
$5.7 million increase in marketing expenses due to an increase in-person events, as well as costs related to digital marketing,
our BeyondTheBlack events, and other user conferences; and
$1.0 million increase in travel and entertainment due to an increase in-person events.
47
Research and development
Research and development, gross
Capitalized internally developed software costs
Research and development, net
Percentage of total revenues
Year Ended December 31,
2023
2022
Change
$
%
$
$
124,546
(21,339)
103,207
(in thousands, except percentages)
$
$
128,514
(19,621)
108,893
$
$
(3,968)
(1,718)
(5,686)
17.5 %
20.8 %
(3)%
9 %
(5)%
The decrease in research and development expenses for the year ended December 31, 2023, compared to the year ended
December 31, 2022, was primarily due to the following:
•
•
•
•
•
•
$4.9 million decrease in transaction-related costs related to the FourQ Acquisition;
$1.8 million decrease in professional fees; and
$1.7 million increase in capitalized software costs due to new significant and enhanced functionality of our solutions, as well as
increased capitalized costs due to higher headcount. Collectively, these increases resulted in a decrease in net expenses;
partially offset by
$1.5 million increase in computer software-related costs driven by business growth;
$1.1 million increase in depreciation and amortization; and
$0.3 million increase in salaries, benefits, and stock-based compensation.
General and administrative
General and administrative
Percentage of total revenues
Year Ended December 31,
2023
2022
Change
$
%
$
71,530
(in thousands, except percentages)
(8,625)
$
80,155
$
(11)%
12.1 %
15.3 %
The decrease in general and administrative expenses for the year ended December 31, 2023, compared to the year ended
December 31, 2022, was primarily due to the following:
•
•
•
•
•
•
•
•
•
$3.9 million decrease in transaction-related costs due to the FourQ Acquisition that occurred in the year ended December 31,
2022, partially offset by transaction-related costs incurred primarily for the Data Interconnect Acquisition in the year ended
December 31, 2023;
$3.5 million decrease in professional fees associated with recruiting, legal, outside consultants, and accounting;
$3.0 million decrease due to net foreign currency gains due to the strengthening of the U.S. Dollar compared to multiple
currencies;
$2.0 million decrease from the impairment of cloud computing implementation costs that were incurred in the prior year
comparable period;
$1.7 million decrease from legal settlement costs that were incurred in the prior year comparable period;
$0.6 million decrease in depreciation and amortization; and
$0.4 million decrease in office expenses; partially offset by
$3.8 million increase in salaries, benefits, and stock-based compensation;
$1.6 million net increase from the change in fair value of contingent consideration attributed to the following:
◦
◦
$33.5 million decrease related to the FourQ Acquisition in the year ended December 31, 2023;
$35.1 million decrease due to $22.4 million related to the FourQ Acquisition and $14.4 million related to the Rimilia
Acquisition, partially offset by an increase of $1.7 million for the 2013 Acquisition (refer to “Note 16 - Contingent
Consideration” for additional information);
48
•
•
$0.6 million increase in travel and entertainment; and
$0.5 million increase in computer software-related costs.
Restructuring costs
Restructuring costs
$
Year Ended December 31,
2023
2022
Change
$
%
10,964 $
(in thousands, except percentages)
7,123
3,841 $
185 %
The increase in restructuring costs during the year ended December 31, 2023, compared to the year ended December 31, 2022, was
due to one-time termination benefits related to the fiscal 2023 and fiscal 2022 restructuring programs. Refer to “Note 12 - Restructuring
Costs” for additional information.
Interest income
Year Ended December 31,
2023
2022
Change
$
%
Interest income
$
52,059 $
(in thousands, except percentages)
37,422
14,637 $
NM
The increase in interest income during the year ended December 31, 2023, compared to the year ended December 31, 2022, was
primarily due to increased average interest rates on our investments and cash balances.
Interest expense
Year Ended December 31,
2023
2022
Change
$
%
Interest expense
$
5,898 $
(in thousands, except percentages)
48
5,850 $
1 %
Interest expense during the year ended December 31, 2023, compared to the year ended December 31, 2022, was essentially flat and
consisted of interest expense on our Notes. We do not expect interest expense to fluctuate significantly over the next 12 months as the
interest rates on our Notes are fixed.
Provision for (benefit from) income taxes
Year Ended December 31,
2023
2022
Change
$
%
Provision for (benefit from) income taxes
$
1,450 $
(in thousands, except percentages)
14,970
(13,520) $
(111)%
We are subject to federal and state income taxes in the U.S. and taxes in foreign jurisdictions. For the year ended December 31, 2023,
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 and foreign income taxes. For the years ended December 31, 2023 and 2022, we
recorded $1.5 million in income tax expense and $13.5 million in income tax benefit, respectively. The increase in income taxes for the year
ended December 31, 2023, compared to the year ended December 31, 2022, resulted primarily from the 2022 release of $14.2 million of
U.S. valuation allowance associated with acquired FourQ deferred tax liabilities, as compared with the 2023 release of $1.7 million of existing
UK valuation allowance associated with acquired net deferred tax liabilities from DI. The increase in 2023 tax expense is also associated with
the increase in federal and state income taxes due to 2023 U.S. profitability and changes in the mix of profitable foreign jurisdictions. For the
year ended December 31, 2023, we continued to maintain 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 tax assets will not be realized.
At December 31, 2023, our principal sources of liquidity were an aggregate of $1.2 billion of cash and cash equivalents and marketable
securities, which primarily consist of short-term, money market mutual funds, commercial paper, U.S. treasury securities, corporate bonds,
and U.S. government agencies. We had $1.4 billion
Liquidity and Capital Resources
49
aggregate principal amount of Notes outstanding at December 31, 2023, of which $250.0 million is due within the next 12 months. We plan to
and believe we are able to make all expected principal and interest payments in the next 12 months.
We believe our existing cash and cash equivalents, investments in marketable securities and cash from operations will be sufficient to
meet our working capital needs, capital expenditures, and financing obligations for at least the next 12 months.
Contractual Obligations and Commitments
Notes Payable
In connection with the offering of the 2024 Notes, we entered into privately-negotiated capped call transactions (the “2024 Capped
Calls”) with certain counterparties covering, subject to anti-dilution adjustments, approximately 3.4 million shares of our common stock and
are generally expected to offset the potential economic dilution of our common stock up to the initial cap price. The 2024 Capped Calls have
an initial strike price of $73.40 per share - subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes -
and an initial cap price of $106.76 per share, subject to certain adjustments. As of December 31, 2023, all of the 2024 Capped Calls
remained outstanding.
In connection with the offering of the 2026 Notes, we entered into privately-negotiated capped call transactions (the “2026 Capped
Calls”) with certain counterparties covering, subject to anti-dilution adjustments, approximately 6.9 million shares of our common stock and
are generally expected to offset the potential economic dilution of our common stock up to the initial cap price. The 2026 Capped Calls have
an initial strike price of $166.23 per share - subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes
- and an initial cap price of $233.31 per share, subject to certain adjustments. As of December 31, 2023, all of the 2026 Capped Calls
remained outstanding.
Lease Liabilities
As of December 31, 2023, we have obligations totaling $20.6 million related to existing property and equipment leases.
Purchase Obligations
Purchase obligations represent our most significant contractual obligations in the ordinary course of business for which we have not
received the related goods or services, in whole or in part. At December 31, 2023, we have $46.4 million of contractual obligations related to
nine commitments, with $22.8 million payable within 12 months, and have additional contractual obligations with other vendors that are
individually immaterial and which we can readily settle given our liquidity position and capital resources.
Contingent Consideration
We are potentially obligated to pay a maximum of $73.2 million of contingent consideration between January 2022 and January 2025
related to our FourQ Acquisition if certain financial performance milestones are met. During the years ended December 31, 2023 and 2022,
and due to a revision of estimates, we decreased the fair value of the FourQ contingent consideration by $33.5 million and $22.4 million,
respectively. Decreases in the fair value of contingent consideration are recorded as reversals of expense within general and administrative
expenses in the consolidated statements of operations. Refer to “Note 16 - Contingent Consideration” for additional information.
Unrecognized Tax Liabilities
At December 31, 2023, while we have liabilities for unrecognized tax benefits of $7.1 million, due to their nature, there is a high degree
of uncertainty regarding the timing of future cash outflows and other events that extinguish these liabilities.
Letters of Credit
Commitments under letters of credit at December 31, 2023 were scheduled to expire as follows (in thousands):
Letters of credit
Total
Less than 1 Year
1-3 Years
3-5 Years
Thereafter
$
461 $
— $
34 $
427 $
—
Letters of credit are maintained pursuant to certain of our lease arrangements. The letters of credit remain in effect at varying levels
through the terms of the related agreements.
50
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not have any relationships with other entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities that have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. We are therefore not exposed to any financing, liquidity, market or credit risk
that could arise if we had engaged in those types of relationships.
In the ordinary course of business, we may provide indemnification of varying scope and terms to customers, vendors, investors,
directors and officers with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements,
services to be provided by us, or from intellectual property infringement claims made by third parties. These indemnification provisions may
survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under
these indemnification provisions may not be subject to maximum loss clauses. The maximum potential amount of future payments we could
be required to make under these indemnification provisions is indeterminable. We have never paid a material claim, nor have we been sued
in connection with these indemnification arrangements. At December 31, 2023, we have not accrued a liability for these indemnification
arrangements because the likelihood of incurring a payment obligation, if any, in connection with these indemnification arrangements is not
probable or reasonably estimable.
Future Capital Requirements
Our future capital requirements will depend on many factors, including our growth rate, strategic relationships and international
operations, the timing and extent of spending to support research and development efforts, future merger and acquisition activity, repurchase
or refinancing of our existing indebtedness, and the continuing market acceptance of our solutions. From time to time, we have required, and
may in the future require or opportunistically raise, additional equity or debt financing. Sales of additional equity or equity-linked securities
could result in dilution to our stockholders. If we raise funds by borrowing from third parties, the terms of those financing arrangements would
require us to incur interest expense and may include negative covenants or other restrictions on our business that could impair our operating
flexibility. We can provide no assurance 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 unable to raise additional capital when needed, we would be required to curtail our operating activities and
capital expenditures, and our business operating results and financial condition would be adversely affected.
Cash Flows
The following table sets forth a summary of our cash flows for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net Cash Provided By Operating Activities
Year Ended December 31,
2023
2022
(in thousands)
126,613 $
(62,483) $
6,146 $
56,013
(395,615)
1,436
$
$
$
Our cash flows provided by operating activities are primarily influenced by our net income, as applicable, and cash generated from
collections in accordance with our subscription-based revenue model wherein billings occur in advance of revenue recognition, as well as the
substantial amount of non-cash charges that we incur. Non-cash activities primarily include depreciation and amortization, stock-based
compensation, changes in fair value of contingent consideration, non-cash lease expense, amortization of debt issuance costs, accretion of
premiums on marketable securities, and deferred taxes.
For the year ended December 31, 2023, cash provided by operating activities was $126.6 million, resulting from net non-cash expenses
of $71.9 million and net income of $59.1 million, partially offset by a net cash outflow from changes in operating assets and liabilities of $4.4
million. The $4.4 million net cash outflow from changes in our operating assets and liabilities reflected the following:
•
•
$20.9 million increase in accounts receivable due to increased sales, partially offset by customer payments;
$7.2 million decrease in operating lease liabilities;
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•
•
•
•
•
$6.6 million increase in prepaid expenses and other current assets primarily due to increased insurance and software
subscriptions, higher accrued interest, and increased capitalized commissions, partially offset by amortization of prepaid
balances and interest received;
$5.1 million decrease in accounts payable due to timing of payments;
$2.4 million paid for the 2013 Acquisition contingent consideration in excess of the acquisition date fair value (refer to “Note 16 -
Contingent Consideration” for additional information);
$2.3 million decrease in other long-term liabilities primarily related to the FourQ Acquisition; and
$0.6 million increase in other assets due to increased prepaid commissions, partially offset by related amortization.
These changes in our operating assets and liabilities were partially offset by a $41.3 million increase in deferred revenue primarily due
to customer and user growth and timing of collections.
For the year ended December 31, 2022, cash provided by operating activities was $56.0 million, resulting from net non-cash expenses
of $75.4 million and net cash flow provided by changes in operating assets and liabilities of $14.5 million, partially offset by our net loss of
$33.9 million. The $14.5 million of net cash flows provided by changes in our operating assets and liabilities reflected the following:
•
•
•
•
•
•
•
$36.6 million increase in deferred revenue as a result of the growth of our customer and user bases, as reflected by greater
billings for our subscription and support services;
$5.9 million increase in accrued expenses and other current liabilities related to increased bonuses, commissions, and payroll
taxes due to increased headcount and higher sales, as well as an increase in accrued restructuring;
$5.8 million increase in other long-term liabilities primarily related to the acquisition of FourQ; and
$4.4 million increase in accounts payable.
These changes in our operating assets and liabilities were partially offset by the following:
$23.0 million increase in accounts receivable;
$10.1 million increase in other assets due to increased prepaid commissions, partially offset by related amortization; and
$6.9 million decrease in operating lease liabilities.
Net Cash Used In Investing Activities
Our investing activities consist primarily of investments in and maturities of marketable securities, capitalized software development
costs, acquisitions of business entities, and capital expenditures for property and equipment.
For the year ended December 31, 2023, cash used in investing activities was $62.5 million as a result of the following:
$23.5 million of purchases of marketable securities, net of proceeds from maturities;
$21.6 million in capitalized software development costs;
$11.4 million paid for the DI Acquisition, net of cash acquired; and
$6.0 million in purchases of property and equipment.
For the year ended December 31, 2022, cash used in investing activities was $395.6 million as a result of the following:
$207.7 million of purchases of marketable securities, net of proceeds from maturities;
$157.7 million, net of cash acquired, paid for the acquisition of FourQ;
$19.2 million in capitalized software development costs; and
$11.0 million in purchases of property and equipment.
•
•
•
•
•
•
•
•
Net Cash Provided By Financing Activities
For the year ended December 31, 2023, cash provided by financing activities was $6.1 million primarily as a result of the following:
•
$19.8 million of proceeds from exercises of stock options; and
52
•
•
•
•
•
•
•
$8.0 million of proceeds from the employee stock purchase plan.
These changes in our financing activities were partially offset by the following:
$15.0 million of acquisitions of common stock for tax withholding obligations;
$5.6 million paid for the 2013 Acquisition contingent consideration (refer to “Note 16 - Contingent Consideration” for additional
information); and
$1.0 million for finance lease payments.
For the year ended December 31, 2022, cash provided by financing activities was $1.4 million primarily as a result of the following:
$7.0 million of proceeds from the employee stock purchase plan; and
$4.7 million of proceeds from exercises of stock options.
These changes in our financing activities were partially offset by the following:
$9.5 million of acquisitions of common stock for tax withholding obligations.
Backlog
We enter into both single and multi-year subscription contracts for our solutions. The timing of our invoices to the customer is a
negotiated term and thus varies among our subscription contracts. For multi-year agreements, it is common to invoice an initial amount at
contract signing followed by subsequent annual invoices. Backlog represents remaining revenue to be recognized under a non-cancelable
contract with customers. At December 31, 2023 and 2022, we had backlog of approximately $842.7 million and $772.9 million, respectively.
We expect backlog will change from period to period for several reasons, including the timing and duration of customer agreements, varying
billing cycles of subscription agreements, and the timing and duration of customer renewals. Because revenue for any period is a function of
revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well as contract renewals and new
customer contracts during the period, backlog at the beginning of any period is not necessarily indicative of future revenue performance. We
do not utilize backlog as a key management metric internally.
Critical Accounting Estimates
Our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in
accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the dates of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. We
evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various 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 and estimates involve a greater degree of judgment or complexity than our
other accounting policies and estimates, and are essential to a full understanding and evaluation of our consolidated financial condition and
results of operations. Refer to “Note 2 - Summary of Significant Accounting Policies” of the accompanying notes to our consolidated financial
statements for additional information.
Deferred Customer Acquisition Costs
We recognize an asset for the incremental and recoverable costs 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 certain sales incentive programs to our employees (“deferred customer
contract acquisition costs”) and our partners (“partner referral fees”) meet the requirements to be capitalized. Deferred customer acquisition
costs related to new revenue contracts and upsells are deferred and then amortized on a straight-line basis over the expected period of
benefit that we have determined to be five years, based upon both the product turnover rate and estimated customer life, which involves
some level of judgment in terms of the inherent assumptions used. Partner referral fees are deferred and then amortized on a straight-line
basis over a period ranging from one year to five years. Deferred customer acquisition costs and partner referral fees are included within
other assets on the consolidated balance sheets. There were no impairment losses in relation to the costs capitalized for the periods
presented.
Capitalized Software Costs
We account for the costs of computer software obtained or developed for internal use in accordance with Accounting Standards
Codification 350, Intangibles—Goodwill and Other. We capitalize certain implementation
53
costs incurred in a hosting arrangement that is a service contract. These capitalized costs exclude training costs, project management costs,
and data migration costs. We capitalize certain costs in the development of our SaaS subscription solutions 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 estimated personnel and related expenses for employees as well
as costs of third-party contractors who are directly associated with and who devote time to internal-use software projects and, when material,
interest costs incurred during the development. Capitalization of these costs ceases once the project is substantially complete and the
software is ready for its intended purpose. Costs incurred for significant upgrades and enhancements to our SaaS software solutions are also
capitalized. Costs incurred for post-configuration training, maintenance and minor modifications or enhancements are expensed as incurred.
Capitalized software development costs are amortized on a straight-line basis over an estimated useful life of three years.
Business Combinations
The results of businesses acquired in business combinations are included in our consolidated financial statements from the date of the
acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the
acquisition 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,
including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, and selection of
comparable companies. We engage the assistance of valuation specialists in concluding on fair value measurements in connection with
determining fair values of assets acquired and liabilities assumed in business combinations.
Contingent consideration payable in cash arising from business combinations is recorded at fair value as a liability on the acquisition
date and remeasured at each reporting date. Changes in fair value are recorded in general and administrative expenses in the consolidated
statements of operations. Determining the fair value of the contingent consideration each period requires management to make assumptions
and judgments. These estimates involve inherent uncertainties, and if different assumptions had been used, the fair value of contingent
consideration could have been materially different from the amounts recorded. The significant inputs used in the fair value measurement of
contingent consideration were as follows:
•
•
•
the likelihood that we would realize a tax benefit from the use of net operating losses generated from the stock option exercises
concurrent with the 2013 Acquisition;
the amount and timing of Rimilia ARR in the second year subsequent to the acquisition;
the amount and timing of new and incremental combined bookings from FourQ and BlackLine, and revenues from a specified
FourQ customer over a three-year period subsequent to the acquisition date.
Significant changes in these estimates and the periods in which they are generated would significantly impact the fair value of the
contingent consideration liability. Due to a revision of estimates related to all contingent consideration payable, we decreased their fair values
and reversed expense of $33.5 million and $35.1 million for the years ended December 31, 2023 and 2022, respectively. Refer to “Note 16 -
Contingent Consideration” for additional information.
Transaction-related costs incurred by us are expensed as incurred and are included in general and administrative expenses in our
consolidated statements of operations.
Recent Accounting Pronouncements
Refer to “Note 2 - Summary of Significant Accounting Policies” contained in the “Notes to Consolidated Financial Statements” in Part II,
Item 8 of this Annual Report on Form 10-K for a full description of the recent accounting pronouncements, and our expectation of their
impact, if any, on our financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
We have operations both within the U.S. and internationally, and we are exposed to market risks in the ordinary course of our business.
These risks primarily include interest rate, foreign exchange, and inflation risks, as well as risks relating to changes in the general economic
conditions in the countries where we conduct business. To reduce these risks, we monitor the financial condition of our customers and limit
credit exposure by collecting in
54
advance and setting credit limits as we deem appropriate. In addition, our investment strategy has historically been to invest in financial
instruments that are highly liquid and readily convertible into cash for use in our operations. To date, we have not used derivative instruments
to mitigate the impact of our market risk exposures. We have also not used, nor do we intend to use, derivatives for trading or speculative
purposes.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates.
In August 2019, we issued $500.0 million aggregate principal amount of the 2024 Notes. The 2024 Notes have a fixed annual interest
rate of 0.125%; therefore, we do not have economic interest rate exposure with respect to the 2024 Notes. In March 2021, we issued $1.150
billion aggregate principal amount of the 2026 Notes. The 2026 Notes have a fixed annual interest rate of 0.0%; therefore, we do not have
economic interest rate exposure with respect to the 2026 Notes. However, the fair value of the Notes is exposed to interest rate risk.
Generally, the fair market value of the Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of
the Notes is affected by our common stock price. The fair value of the Notes will generally increase as our common stock price increases and
will generally decrease as our common stock price declines. Additionally, we carry the Notes at face value less unamortized issuance costs
on our consolidated balance sheet, and we present the fair value for required disclosure purposes only.
We had cash and cash equivalents and marketable securities of $1.2 billion at December 31, 2023. Our cash equivalents and
marketable securities consist of highly liquid, money market mutual funds, commercial paper, U.S. treasury securities, corporate bonds, and
U.S. government agencies.
The carrying amount of our cash equivalents and marketable securities reasonably approximates fair value due to the highly liquid
nature of these instruments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs
and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are
exposed to market risk due to fluctuations in interest rates, which may affect our interest income and the fair market value of our investments.
Due to the short-term nature of our investment portfolio, however, we do not believe an immediate 10% increase or decrease in interest rates
would have a material effect 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 sudden change in market interest rates.
We do not believe our cash equivalents and marketable securities have significant risk of default or illiquidity. While we believe our cash
equivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future, our
investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash
equivalents at one or more financial institutions that are in excess of federally insured limits. We cannot be assured that we will not
experience losses on these deposits.
Foreign Currency Risk
While we primarily transact with customers in the U.S. Dollar, we also transact in foreign currencies, including the Australian Dollar,
British Pound, Canadian Dollar, Euro, Japanese Yen, Romanian Leu, and Singapore Dollar due to foreign operations and customer sales.
We expect to continue to grow our foreign operations and customer sales. Our international subsidiaries maintain certain asset and liability
balances that are denominated in currencies other than the functional currencies of these subsidiaries, which is the U.S. Dollar for all
international subsidiaries, with the exception of our Japanese subsidiary, for which the Japanese Yen is the functional currency. Changes in
the value of foreign currencies relative to the U.S. Dollar can result in fluctuations in our total assets, liabilities, revenue, operating expenses,
and cash flows. The effect of a hypothetical 10% increase or decrease in foreign currency exchange rates applicable to our business would
have reduced by $3.9 million or increased by $3.9 million, respectively, our cash balances at December 31, 2023.
As our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to
reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. Dollar can increase the costs of our
international expansion. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations have not
had a material impact on our operating results and cash flows. Based on the current level of foreign operations and customer sales, we do
not plan on engaging in hedging activities in the near future.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if
our costs 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.
55
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets at December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
PAGE
57
59
60
61
62
63
65
56
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,
2023 and 2022, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash
flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023,
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
Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 11 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible
senior notes in 2022.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual
Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether 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 the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. 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
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
57
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to
the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Revenue Recognition – Certain Subscription and Support Revenue
As described in Note 2 to the consolidated financial statements, customers pay subscription and support fees for access to the Company’s
software as a service (SaaS) platform. The Company's subscription contracts have initial terms of one year to three years with renewal
options. 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 includes support, is recognized on a straight-line basis over the non-cancellable
contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer. The
Company’s subscription and support revenue for the year ended December 31, 2023 was $555.5 million, of which a majority pertains to
certain of the Company’s subscription and support revenue.
The principal consideration for our determination that performing procedures relating to revenue recognition for certain subscription and
support revenue is a critical audit matter is a high degree of auditor effort in performing procedures related to revenue recognized on certain
of the Company’s subscription and support revenue.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition
process, including controls over the initiation, billing and recording of certain new and recurring subscriptions and the related subscription and
support revenue. These procedures also included, among others (i) testing certain subscription and support revenue transactions, on a
sample basis, by obtaining and inspecting source documents, such as contracts, invoices, and cash receipts, and recalculating revenue
recognized and the ending deferred revenue balance; (ii) confirming, on a sample basis, outstanding customer invoice balances as of
December 31, 2023 and, for confirmations not returned, obtaining and inspecting source documents, such as contracts, invoices, subsequent
cash receipts, and other source documents to support collectability of outstanding customer invoice balances; and (iii) testing the issuance of
credit memos, on a sample basis, by obtaining and inspecting source documents, such as credit memos, original invoices, and re-issued
invoices.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 23, 2024
We have served as the Company’s auditor since 2014.
58
BLACKLINE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par values)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities (amortized cost of $932,850 and $875,456 at December 31, 2023 and December
31, 2022, respectively)
Accounts receivable, net of allowances of $5,064 and $2,282 at December 31, 2023 and 2022,
respectively
Prepaid expenses and other current assets
Total current assets
Capitalized software development costs, net
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets
Other assets
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY
Total assets
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue, current
Finance lease liabilities, current
Operating lease liabilities, current
Convertible senior notes, net, current
Contingent consideration, current
Total current liabilities
Finance lease liabilities, noncurrent
Operating lease liabilities, noncurrent
Convertible senior notes, net, noncurrent
Contingent consideration, noncurrent
Deferred tax liabilities, net
Deferred revenue, noncurrent
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 17)
Redeemable non-controlling interest (Note 4)
Stockholders' equity:
December 31, 2023 December 31, 2022
$
271,117 $
200,968
933,355
874,083
171,608
31,244
1,407,324
37,828
14,867
79,056
448,965
19,173
93,552
2,100,765 $
$
$
8,623 $
59,690
320,133
778
4,108
249,233
—
642,565
4
15,738
1,140,608
—
6,394
904
3,608
1,809,821
150,858
23,658
1,249,567
32,070
19,811
90,864
443,861
14,708
92,775
1,943,656
14,964
58,600
279,325
989
5,943
—
8,000
367,821
785
9,292
1,384,306
33,549
5,568
343
6,229
1,807,893
30,063
23,895
Common stock, $0.01 par value, 500,000,000 shares authorized, 61,515,105 and 60,016,824 issued
and outstanding at December 31, 2023 and 2022, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders' equity
Total liabilities, redeemable non-controlling interest, and stockholders' equity
615
474,863
205
(214,802)
260,881
2,100,765 $
600
385,709
(1,472)
(272,969)
111,868
1,943,656
$
The accompanying notes are an integral part of these consolidated financial statements.
59
BLACKLINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
2023
2022
2021
Revenues
Subscription and support
Professional services
Total revenues
Cost of revenues
Subscription and support
Professional services
Total cost of revenues
Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Restructuring costs
Total operating expenses
Income (loss) from operations
Other income (expense)
Interest income
Interest expense
$
555,516 $
34,480
589,996
491,187 $
31,751
522,938
121,308
25,485
146,793
443,203
243,154
103,207
71,530
10,964
428,855
14,348
52,059
(5,898)
46,161
60,509
1,450
59,059
892
5,334
52,833 $
0.87 $
60,849
102,132
27,253
129,385
393,553
256,862
108,893
80,155
3,841
449,751
(56,198)
14,637
(5,850)
8,787
(47,411)
(13,520)
(33,891)
(369)
(4,131)
(29,391) $
(0.49) $
59,539
0.81 $
(0.49) $
72,045
59,539
398,633
27,073
425,706
71,979
25,892
97,871
327,835
202,620
77,322
86,507
—
366,449
(38,614)
700
(62,945)
(62,245)
(100,859)
135
(100,994)
(910)
15,077
(115,161)
(1.97)
58,351
(1.97)
58,351
Other income (expense), net
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Net income (loss) attributable to redeemable non-controlling interest (Note 4)
Adjustment attributable to redeemable non-controlling interest (Note 4)
Net income (loss) attributable to BlackLine, Inc.
Basic net income (loss) per share attributable to BlackLine, Inc.
Shares used to calculate basic net income (loss) per share
Diluted net income (loss) per share attributable to BlackLine, Inc.
Shares used to calculate diluted net income (loss) per share
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
60
BLACKLINE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Year Ended December 31,
2023
2022
$
59,059 $
(33,891) $
2021
(100,994)
Net change in unrealized gains (losses) on marketable securities, net of tax of $123,
$0, and $0, for the years ended December 31, 2023, 2022 and 2021, respectively
Foreign currency translation
Other comprehensive income (loss)
Comprehensive income (loss)
Less comprehensive income (loss) attributable to redeemable non-controlling interest:
Net income (loss) attributable to redeemable non-controlling interest
Foreign currency translation attributable to redeemable non-controlling interest
Comprehensive income (loss) attributable to redeemable non-controlling interest
Comprehensive income (loss) attributable to BlackLine, Inc.
$
1,755
(136)
1,619
60,678
892
(58)
834
59,844 $
(1,450)
(624)
(2,074)
(35,965)
(369)
(304)
(673)
(35,292) $
88
(312)
(224)
(101,218)
(910)
(146)
(1,056)
(100,162)
The accompanying notes are an integral part of these consolidated financial statements.
61
BLACKLINE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2020
Stock option exercises
Vesting of restricted stock units
Issuance of common stock through
employee stock purchase plan
Acquisition of common stock for tax
withholding obligations
Stock-based compensation
Other comprehensive loss
Equity component of partial repurchase of
2024 convertible senior notes
Equity component of the 2026 convertible
senior notes, net of issuance costs and tax
Purchase of capped calls
Net loss attributable to BlackLine, Inc.,
including adjustment to redeemable non-
controlling interest
Balance at December 31, 2021
Cumulative-effect adjustment related to
adoption of ASU 2020-06, net of tax
Balance at January 1, 2022
Stock option exercises
Vesting of restricted stock units
Issuance of common stock through
employee stock purchase plan
Acquisition of common stock for tax
withholding obligations
Stock-based compensation
Other comprehensive loss
Net loss attributable to BlackLine, Inc.,
including adjustment to redeemable non-
controlling interest
Balance at December 31, 2022
Stock option exercises
Vesting of restricted stock units
Issuance of common stock through
employee stock purchase plan
Acquisition of common stock for tax
withholding obligations
Stock-based compensation
Other comprehensive income
Net income attributable to BlackLine, Inc.,
including adjustment to redeemable non-
controlling interest
Balance at December 31, 2023
Shares
57,682 $
415
780
107
—
—
—
—
—
—
—
58,984
—
58,984
246
634
153
—
—
—
—
60,017
583
738
177
—
—
—
577 $
5
7
622,768 $
11,416
—
376 $
—
—
1
—
—
—
—
—
—
—
590
—
590
2
6
2
—
—
—
—
600
7
6
2
—
—
—
9,019
(17,007)
67,595
—
(219,284)
268,803
(102,350)
(15,077)
625,883
(324,418)
301,465
4,679
—
6,994
(9,544)
77,984
—
4,131
385,709
19,749
—
8,008
(15,029)
81,760
—
—
—
—
(78)
—
—
—
—
298
—
298
—
—
—
—
—
(1,770)
—
(1,472)
—
—
—
—
—
1,677
Accumulated
Deficit
(201,651) $
—
—
—
—
—
—
—
—
—
(100,084)
(301,735)
62,288
(239,447)
—
—
—
—
—
—
(33,522)
(272,969)
—
—
—
—
—
—
Total
422,070
11,421
7
9,020
(17,007)
67,595
(78)
(219,284)
268,803
(102,350)
(115,161)
325,036
(262,130)
62,906
4,681
6
6,996
(9,544)
77,984
(1,770)
(29,391)
111,868
19,756
6
8,010
(15,029)
81,760
1,677
—
61,515 $
—
615 $
(5,334)
474,863 $
—
205 $
58,167
(214,802) $
52,833
260,881
The accompanying notes are an integral part of these consolidated financial statements.
62
BLACKLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net income (loss) attributable to BlackLine, Inc.
Net income (loss) and adjustment attributable to redeemable non-controlling interest (Note 4)
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Year Ended December 31,
2023
2022
2021
$
52,833 $
6,226
59,059
(29,391) $
(4,500)
(33,891)
(115,161)
14,167
(100,994)
Depreciation and amortization
Change in fair value of contingent consideration
Amortization of debt issuance costs
Loss on extinguishment of convertible senior notes
Stock-based compensation
Noncash lease expense
(Accretion) amortization of purchase discounts on marketable securities, net
Net foreign currency (gains) losses
Deferred income taxes
Provision for (benefit from) credit losses
Impairment of cloud computing implementation costs
Changes in operating assets and liabilities, net of impact of acquisition:
Accounts receivable
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Contingent consideration paid in excess of original estimates
Operating lease liabilities
Lease incentive receipts
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchases of marketable securities
Proceeds from maturities of marketable securities
Capitalized software development costs
Purchases of property and equipment
Acquisition, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities
Investment from redeemable non-controlling interest
Proceeds from issuance of convertible senior notes, net of issuance costs
Partial repurchase of convertible senior notes
Purchase of capped calls related to convertible senior notes
Principal payments under finance lease obligations
Proceeds from exercises of stock options
Proceeds from employee stock purchase plan
Acquisition of common stock for tax withholding obligations
Financed purchases of property and equipment
Payment of contingent consideration for the 2013 Acquisition
Net cash provided by financing activities
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash, beginning of period
Cash, cash equivalents, and restricted cash, end of period
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets
Cash and cash equivalents at end of period
Restricted cash included within other assets at end of period
Total cash, cash equivalents, and restricted cash at end of period shown in the consolidated statements of cash flows
$
$
$
50,099
(33,549)
5,535
—
77,970
6,453
(33,884)
853
(1,525)
(18)
—
(20,855)
(6,599)
(595)
(5,104)
(924)
41,271
(2,393)
(7,171)
240
(2,250)
126,613
(1,343,331)
1,319,821
(21,644)
(5,953)
(11,376)
(62,483)
—
—
—
—
(990)
19,762
8,010
(15,029)
—
(5,607)
6,146
(120)
70,156
201,207
42,816
(35,130)
5,511
—
75,884
5,593
(8,874)
(1,470)
(14,404)
115
5,330
(23,033)
1,059
(10,112)
4,376
5,893
36,646
—
(6,949)
812
5,841
56,013
(1,599,945)
1,392,250
(19,208)
(10,974)
(157,738)
(395,615)
—
—
—
—
(619)
4,687
6,996
(9,544)
(84)
—
1,436
(618)
(338,784)
539,991
271,363 $
201,207 $
27,128
(2,758)
55,538
7,012
65,870
4,513
6
112
(817)
(100)
—
(14,255)
(3,956)
(22,505)
3,997
14,876
51,579
—
(5,153)
—
—
80,093
(1,180,885)
697,209
(14,536)
(8,729)
—
(506,941)
2,171
1,128,794
(432,230)
(102,350)
(37)
11,428
9,020
(17,007)
(549)
—
599,240
(314)
172,078
367,913
539,991
271,117 $
246
271,363 $
200,968 $
239
201,207 $
539,739
252
539,991
The accompanying notes are an integral part of these consolidated financial statements.
63
BLACKLINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL CASH FLOWS DISCLOSURE
(in thousands)
Supplemental disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Non-cash financing and investing activities
Adjustment for adoption of ASU 2020-06
Estimated fair value of contingent consideration
Stock-based compensation capitalized for software development
Capitalized software development costs included in accounts payable and accrued expenses and other current
liabilities at end of period
Purchases of property and equipment included in accounts payable and accrued expenses and other current
liabilities at end of period
Leased assets obtained in exchange for new financing lease liabilities
Leased assets obtained in exchange for new operating lease liabilities
Leasehold improvements paid directly by landlord
Year Ended December 31,
2023
2022
2021
$
$
$
$
$
$
$
$
$
$
313 $
313 $
3,097 $
1,123 $
— $
— $
262,130 $
55,947 $
3,481 $
2,379 $
1,510 $
1,816 $
60 $
— $
10,438 $
271 $
847 $
1,223 $
3,866 $
— $
506
890
—
—
1,849
1,276
816
1,231
12,066
—
The accompanying notes are an integral part of these consolidated financial statements.
64
BLACKLINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – The Company
BlackLine, Inc. and its subsidiaries (the “Company” or “BlackLine”) provide financial accounting close solutions delivered primarily as
Software as a Service (“SaaS”). The Company’s solutions enable its customers to address various aspects of their critical processes,
including financial close, intercompany accounting, invoice-to-cash, and consolidation.
The Company is a holding company and conducts its operations through its wholly-owned subsidiary, BlackLine Systems, Inc.
(“BlackLine Systems”). 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 is referred to as the “2013
Acquisition.”
On September 12, 2023, the Company acquired Data Interconnect (“DI”), hereinafter referred to as the “DI Acquisition”. DI is a cloud-
based Invoice-to-Cash automation vendor within the electronic invoice presentment and payment (“EIPP”) market. The primary purpose of
the DI Acquisition was to enhance the Company's existing accounts receivable automation solution by adding EIPP capabilities. This
acquisition was not a significant acquisition under Regulation S-X.
On January 26, 2022, the Company acquired FourQ Systems, Inc. (“FourQ”), hereinafter referred to as the “FourQ Acquisition.” The
primary purpose of the FourQ Acquisition was to enhance our existing intercompany accounting automation capabilities by driving end-to-end
automation of traditionally manual intercompany accounting processes. The purchase accounting allocation was finalized during the quarter
ended March 31, 2023. Refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the
Securities and Exchange Commission (“SEC”) on February 23, 2023 for additional information.
The Company is headquartered in Woodland Hills, California. On June 15, 2023, the Company entered into a five-year lease extension
for the office in Woodland Hills. This extension increased both the right-of-use asset and lease liability by approximately $7.3 million. The
Company has other local offices in Pleasanton, California; New York, New York; and Westport, Connecticut. We also have international office
locations in Australia, Canada, France, Germany, India, Japan, the Netherlands, Poland, Romania, Singapore, and the United Kingdom.
Note 2 – Summary of Significant Accounting Policies
Principles of consolidation and basis of presentation
The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) and include the operating results of its wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated on consolidation.
Use of estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.
On an ongoing basis, management evaluates its estimates, primarily those related to determining the stand-alone selling price for
separate deliverables in the Company’s subscription revenue arrangements, allowance for doubtful accounts, cancellations and credits, fair
value of assets and liabilities assumed in a business combination, recoverability of goodwill and long-lived assets, useful lives associated
with long-lived assets and right-of-use assets, income taxes, contingencies, fair value of contingent consideration, fair value of the convertible
senior notes (the “Notes”) issued in August 2019 and March 2021, redemption value of redeemable non-controlling interest, and the valuation
and assumptions underlying stock-based compensation. These estimates are based on historical data and experience, as well as various
other factors that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.
The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context
with the information reasonably available to the Company at December 31, 2023 and through the date of this report. The accounting matters
assessed included, but were not limited to, the Company’s valuation of contingent consideration, the allowance for credit losses, and the
carrying value of goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial
statements for the year
65
ended December 31, 2023, the Company’s future assessment of these accounting matters and other factors could result in material impacts
to the Company’s consolidated financial statements in future reporting periods.
Segments
Management has determined that the Company has one operating segment. Together, our Chief Executive Officers are the chief
operating decision maker and review the financial information on a consolidated and aggregate basis, together with certain operating metrics
principally to make decisions about how to allocate resources and to measure the Company’s performance.
Concentration of credit risk and significant customers
Financial 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 interest-bearing accounts, which exceeds
the Federal Deposit Insurance Corporation, or FDIC, federally insured limits. The Company invests its excess cash in money market mutual
funds, commercial paper, U.S. treasury securities, corporate bonds, and U.S. government agencies with two major investment banks. To
date, the Company has not experienced any impairment losses on its investments.
For the years ended December 31, 2023, 2022, and 2021, no single customer comprised 10% or more of the Company’s total
revenues. No single customer had an accounts receivable balance of 10% or greater of total accounts receivable at December 31, 2023 or
2022.
Cash and cash equivalents
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of
purchase to be cash equivalents. Cash includes cash held in checking and savings accounts. Cash equivalents are comprised of
investments in money market mutual funds, commercial paper, U.S. treasury securities, corporate bonds, and U.S. government agencies.
The carrying value of cash and cash equivalents approximates fair value.
Restricted cash
Included in other assets and prepaid expenses and other current assets was $0.2 million and $0.2 million of restricted cash at
December 31, 2023 and 2022, respectively. The cash was required to be restricted for use by the Company’s office leaseholder to
collateralize a standby letter of credit.
Investments in marketable securities
The Company periodically assesses its portfolio of marketable securities for impairment. For debt securities in an unrealized loss
position, this assessment first takes into account the Company’s intent to sell, or whether it is more likely than not that it will be required to
sell the security before recovery of its amortized cost basis. If either of these criteria are met, the debt security’s amortized cost basis is
written down to fair value through other income (expense), net.
For debt securities in an unrealized loss position that do not meet the aforementioned criteria, the Company assesses whether the
decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which
fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically
related to the security, among other factors. If this assessment indicates that a credit loss may exist, the present value of cash flows expected
to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be
collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded through other income
(expense), net, limited by the amount that the fair value is less than the amortized cost basis. Any additional impairment not recorded through
an allowance for credit losses is recognized in accumulated other comprehensive loss in the consolidated statements of stockholders’ equity.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged
against the allowance when the Company believes the uncollectibility of an available-for-sale security is confirmed or when either of the
criteria regarding intent or requirement to sell is met. The Company has not recorded any credit losses for the year ended December 31,
2023. The Company has not recorded any impairment charges for unrealized losses in the periods presented.
Accounts receivable and credit losses
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts.
The Company makes estimates of expected credit losses and cancellations and
66
credits based upon its assessment of various factors, including historical experience, the age of the accounts receivable balances, credit
quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors
that may affect its ability to collect from customers. The estimated credit loss allowance is recorded as general and administrative expenses,
while the estimated credit loss allowance for cancellations and credits is recorded as a reduction in revenue on the consolidated statements
of operations.
Leases
The Company has leases for office space, equipment, and data centers. The Company determines whether an arrangement is a lease,
or contains a lease, at inception if the Company is both able to identify an asset and can conclude it has the right to control the identified
asset for a period of time. Leases are included in property and equipment, operating lease right-of-use (“ROU”) assets, finance lease
liabilities, and operating lease liabilities on the Company’s consolidated balance sheets.
The Company has made accounting policy elections, including a short-term lease exception policy, permitting the Company to not apply
the recognition requirements of this standard to short-term leases (i.e. leases with expected terms of 12 months or less), and an accounting
policy to account for lease and certain non-lease components as a single component for certain classes of assets. The portfolio approach,
which allows a lessee to account for its leases at a portfolio level, was elected for certain equipment leases in which the difference in
accounting for each asset separately would not have been materially different from accounting for the assets as a combined unit.
Finance lease assets and operating lease ROU assets represent the Company's right to control an underlying asset for the lease term.
Finance lease liabilities and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease,
both of which are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s
leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at
commencement date or remeasurement date to determine the discount rate used to present value lease payments for finance and operating
leases. The incremental borrowing rate used is estimated based on what the Company would be required to pay for a collateralized loan over
a similar term. Additionally, the Company generally uses the portfolio approach when applying the discount rate selected based on the dollar
amount and term of the obligation. The Company’s leases typically do not include any residual value guarantees, bargain purchase options,
or asset retirement obligations.
The Company’s lease terms are only for periods in which it has enforceable rights. The Company generally uses the base, non-
cancellable lease term when determining the lease assets and liabilities. A lease is no longer enforceable when both the lessee and the
lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The
Company’s lease terms are impacted by options to extend or terminate the lease when it is reasonably certain that the Company will exercise
that option.
The Company’s agreements may contain variable lease payments. The Company includes variable lease payments that depend on an
index or a rate and excludes those which depend on facts or circumstances occurring after the commencement date, other than the passage
of time. Additionally, for certain equipment leases, the Company applies a portfolio approach to effectively account for the lease assets and
liabilities.
Judgment is required when determining whether any of the Company’s data center contracts contain a lease. The Company concluded
a lease exists when the asset is specifically identifiable, substantially all the economic benefit of the asset is obtained, and the right to direct
the use of the asset exists during the term of the lease.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which is generally three to five years for machinery and equipment and purchased software, and five
years for furniture and fixtures. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or
seven years. Expenditures for repairs and maintenance are expensed as incurred, while renewals and improvements are capitalized.
Depreciation expense is charged to operations on a straight-line basis over the estimated useful lives of the assets.
Capitalized internal-use software costs
The Company capitalizes certain costs in the development of its SaaS subscription solution 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 for employees and costs of third-
party contractors who are directly associated with and who devote time to internal-use software projects. Capitalization of these costs ceases
once
67
the project is substantially complete and the software is ready for its intended purpose. Costs incurred for significant upgrades and
enhancements to the Company’s SaaS software solutions are also capitalized. Costs incurred for training, maintenance and minor
modifications or enhancements are expensed as incurred. Capitalized software development costs are amortized using the straight-line
method over an estimated useful life of three years.
During the years ended December 31, 2023, 2022, and 2021, the Company amortized $19.1 million, $13.6 million, and $9.0 million,
respectively, of internal-use software development costs to subscription and support cost of revenues. At December 31, 2023 and 2022, the
accumulated amortization of capitalized internal-use software development costs was $60.6 million and $41.6 million, respectively.
The Company capitalizes certain implementation costs incurred in a hosting arrangement that is a service contract. These capitalized
costs exclude training costs, project management costs, and data migration costs. Capitalized software implementation costs are amortized
using the straight-line method over the terms of the associated hosting arrangements.
Intangible assets
Intangible assets primarily consist of developed technology, customer relationships, and trade names, which were acquired as part of
purchase business combinations, as well as a defensive patent that was acquired through a purchase agreement. The Company determines
the appropriate useful life of its intangible assets by performing an analysis of expected cash flows of the acquired assets. Intangible assets
are amortized on a straight-line basis over their estimated useful lives, ranging from one to 11 years.
Impairment of long-lived assets
Management 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 considered by the Company in determining whether the carrying value of long-lived assets may not be recoverable include,
but are not limited to, significant changes in performance relative to expected operating results, significant changes in the use of the assets,
significant negative industry or economic trends, and changes in the Company’s business strategy. Impairment testing is performed at an
asset level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and
liabilities (an “asset group”). In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from
the use and ultimate disposition of the asset group. If the undiscounted cash flows for the asset group are less than its net book value, an
impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. For the years
ended December 31, 2023, 2022, and 2021, we recognized charges for the impairment of cloud computing implementation costs of zero,
$5.3 million, and zero, respectively.
Business combinations
The results of businesses acquired in business combinations are included in the Company’s consolidated financial statements from the
date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their
estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is
recognized as goodwill.
Transaction costs associated with business combinations are expensed as incurred and are included in general and administrative
expenses in the consolidated statements of operations.
The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets
and liabilities. Determining the fair value of the identifiable assets acquired, and liabilities assumed, and the contingent consideration liability
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 comparable companies. The Company engages the assistance of valuation
specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in
a business combination.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is
tested for impairment at least annually at the reporting unit level or whenever events or changes in circumstances indicate that goodwill might
be impaired. Events or changes in circumstances which could trigger an impairment review include a significant adverse change in legal
factors or in the business climate, unanticipated competition, loss of key personnel, significant changes in the use of the acquired assets or
the Company’s strategy, significant negative industry or economic trends, or significant underperformance relative to expected historical or
projected future results of operations.
68
An entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances 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, after assessing 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 less than its carrying
amount, then additional impairment testing is not required. However, if an entity concludes otherwise, then it is required to perform an
impairment test.
The first step involves comparing the estimated fair value of a reporting unit with its book value, including goodwill. If the estimated fair
value exceeds book value, goodwill is considered not to be impaired and no additional steps are necessary. If, however, the fair value of the
reporting unit is less than book value, then an impairment charge is recorded for the difference between the reporting unit’s fair value and
carrying amount, not to exceed the carrying amount of the goodwill.
The Company has one reporting unit, and it tests its goodwill for impairment annually, during the fourth quarter of the calendar year. At
December 31, 2023 and 2022, the Company used the quantitative approach to perform its annual goodwill impairment test. The fair value of
the Company's reporting unit significantly exceeded the carrying value of its net assets and, accordingly, goodwill was not impaired.
Redeemable non-controlling interest
The 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
minority investors were to be redeemed under these agreements, the Company would be required to redeem the interest based on a
prescribed formula derived from the relative revenue of BlackLine K.K. and the Company. The balance of the redeemable non-controlling
interest is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest's share of earnings or
losses and other comprehensive income or loss, or its estimated redemption value. The resulting changes in the estimated redemption
amount (increases or decreases) are recorded with corresponding adjustments against retained earnings or, in the absence of retained
earnings, additional paid-in capital. These interests are presented on the consolidated balance sheets outside of equity under the caption
“Redeemable non-controlling interest.”
Convertible senior notes
The Company accounts for the issued Notes as a liability at face value less unamortized debt issuance costs. The debt issuance costs
are being amortized to expense over the respective term of the Notes. To the extent that the Company receives conversion requests prior to
the maturity of the Notes, upon settlement of the conversion requests, the difference between the fair value and the amortized book value of
the Notes requested for conversion is recorded as a gain or loss on early conversion. The fair value of the Notes are measured based on a
similar liability that does not have an associated convertible feature based on the remaining term of the Notes, which requires significant
judgment.
Restructuring costs
The Company records a charge for restructuring when management commits to a restructuring plan, the restructuring plan identifies all
significant actions, the period of time to complete the restructuring plan indicates that significant changes to the restructuring plan are not
likely, and employees who are impacted have been notified of the pending involuntary termination.
Fair value of financial instruments
ASC 820, Fair Value Measurement, requires entities to disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the exchange
price that would be 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 an orderly 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 last
unobservable, 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 quoted prices in active markets for identical or similar assets or liabilities.
69
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
At December 31, 2023 and 2022, the carrying values of cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate their fair values due to the short-term nature of such instruments.
Contingent consideration related to acquisitions is recorded at fair value as a liability on the acquisition date and is remeasured at each
reporting date, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value
hierarchy. The valuation of contingent consideration uses assumptions management believes would be made by a market participant.
Management assesses these estimates on an ongoing basis as additional data impacting the assumptions becomes available. Changes in
the fair value of contingent consideration related to updated assumptions and estimates are recognized within general and administrative
expenses in the consolidated statements of operations.
To determine the fair value of the contingent consideration related to the FourQ Acquisition, management utilized a Monte Carlo
simulation model to value the earnout based on the likelihood of reaching firm-specific targets. Significant inputs used in the fair value
measurement of contingent consideration are the amount and timing of new and incremental combined bookings from FourQ and BlackLine,
and revenues from a specified FourQ customer over a three-year period subsequent to the acquisition date, as well as the discount rate.
Certain assets, including goodwill and long-lived assets, are also subject to measurement at fair value on a non-recurring basis if they
are deemed to be impaired as a result of an impairment review. For the years ended December 31, 2023, 2022, and 2021, we recognized
charges for the impairment of cloud computing implementation costs of zero, $5.3 million, and zero, respectively.
Revenue recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the
consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can
include various combinations of subscription and support services and professional services, which are generally capable of being distinct
and accounted for as separate performance obligations. The Company’s agreements do not contain any refund provisions other than in the
event of the Company’s non-performance or breach.
•
•
•
•
•
The Company determines revenue recognition through the following steps:
Identification of the contract, or contracts, with a customer;
Identification of performance obligations in the contract;
Determination of the transaction price;
Allocation of the transaction price to performance obligations in the contract; and
Recognition of revenue when, or as, performance obligations are satisfied.
The Company recognizes revenue net of any applicable value added or sales tax.
Subscription and support revenue – Customers pay subscription and support fees for access to the Company’s SaaS platform. Our
subscription contracts have initial terms of one year to three years with renewal options. 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 includes
support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date
that the Company’s service is made available to the customer.
Subscription and support revenue also includes software and related maintenance and support fees on perpetual licenses. Revenues
from perpetual licenses are recognized immediately at the time the Company provides the customer with a right to use the software as it
exists when made available to the customer. Customers may have purchased perpetual licenses or term-based licenses, which provide
customers with the same functionality and differ mainly in the duration over which the customer benefits from the software.
Professional services revenue – Professional services consist of implementation and consulting services to assist the Company’s
customers as they deploy our solutions. These services are considered distinct performance obligations. Professional services do not result
in significant customization of the subscription service. The Company applies the practical expedient to recognize professional services
revenue when it has the right to invoice based on time and materials incurred. The Company applies the optional exemption and has
excluded the variable consideration from the disclosure of remaining performance obligations.
70
Contracts with Multiple Performance Obligations – The Company’s contracts with customers often contain multiple performance
obligations. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction
price is allocated to the separate performance obligations on a relative standalone selling price (“SSP”) basis. Determining whether products
and services are considered distinct performance obligations that should be accounted for separately versus together, as well as the
determination of SSP for each distinct performance obligation, may require significant judgment. 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 Company determines the SSPs of subscriptions to the SaaS solutions
and professional services based on numerous factors including the Company’s overall pricing objectives, geography, customer size, number
of users, and discounting practices. The Company uses historical maintenance renewal fees to estimate SSP for maintenance and support
fees bundled with software licenses. The Company uses the residual method to estimate SSP of software licenses, because license pricing
is highly variable and not sold separately from maintenance and support.
Contract balances – Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records an
unbilled receivable when revenue is recognized prior to invoicing, and deferred revenue when revenue is recognized subsequent to
invoicing. The Company generally invoices customers annually at the beginning of each annual contract period.
Deferred revenue is comprised mainly of billings in advance of revenue being recognized related to the Company’s subscription and
support services and professional services arrangements.
Changes in deferred revenue for the years ended December 31, 2023, 2022, and 2021 were primarily due to additional billings in the
periods, partially offset by revenue recognized of $274.3 million, $239.9 million, and $189.6 million, respectively, that was previously included
in the deferred revenue balance at December 31, 2022, 2021, and 2020, respectively.
The transaction price is generally determined by the stated fixed fees in the contract, excluding any related sales taxes. Transaction
price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized (“contracted not
recognized”), which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted not
recognized revenue was $842.7 million at December 31, 2023, of which the Company expects to recognize approximately 57.3% over the
next 12 months and the remainder thereafter.
Fees are generally due and payable within 30 days. None of the Company’s contracts include a significant financing component.
Assets recognized from the costs to obtain a contract with a customer – The Company recognizes an asset for the incremental
and recoverable costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be one year or longer. The
Company has determined that certain sales incentive programs to the Company’s employees (“deferred customer contract acquisition costs”)
and its partners (“partner referral fees”) meet the requirements to be capitalized. Deferred customer acquisition costs related to new revenue
contracts and upsells are deferred and then amortized on a straight-line basis 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. The Company enters into partnership
arrangements where partner referral fees are paid either on the initial contract or on both the initial contract and renewal of the contract. The
Company assesses whether the renewal fee is commensurate with the initial fee. When the renewal fee is commensurate with the initial fee,
the Company amortizes the deferred costs over the initial year of the contract. Otherwise, the initial fee is amortized over five years. Deferred
customer acquisition costs and partner referral fees are included within other assets on the consolidated 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
marketing expenses in the consolidated statements of operations and was $34.1 million, $29.7 million, and $22.4 million for the years ended
December 31, 2023, 2022, and 2021, respectively.
Cost of revenues
Cost of revenues primarily consists of costs related to hosting the Company’s cloud-based application suite, salaries and benefits of
operations and support personnel, including stock-based compensation, professional fees, and amortization of capitalized internal-use
software costs. The Company allocates a portion of overhead, such as rent, information technology costs and depreciation and amortization
to cost of revenues. Costs associated with providing professional services are expensed as incurred when the services are performed. In
addition, subscription and support cost of revenues includes amortization of acquired developed technology.
71
Sales and marketing
Sales and marketing expenses consist primarily of compensation and employee benefits, including stock-based compensation, of sales
and marketing personnel and related sales support teams, sales and partner commissions, marketing events, advertising costs, computer
software-related costs, travel, trade shows, other marketing materials, and allocated overhead. Sales and marketing expenses also include
amortization of customer relationship intangible assets, transaction-related costs, and impairment of cloud computing implementation costs.
Advertising costs are expensed as incurred and totaled $11.8 million, $9.5 million, and $9.0 million for the years ended December 31, 2023,
2022, and 2021, respectively.
Research and development
Research and development expenses are comprised primarily of salaries, benefits and stock-based compensation associated with the
Company’s engineering, product and quality assurance personnel. Research and development expenses also include third-party contractors
and supplies, computer software-related costs, transaction-related costs, and allocated overhead. Other than software development costs
that qualify for capitalization, as discussed above, research and development costs are expensed as incurred.
General and administrative
General and administrative expenses consist primarily of personnel costs associated with the Company’s executive, finance, legal,
human resources, compliance, and other administrative personnel, as well as accounting and legal professional fees, other corporate-related
expenses and allocated overhead. General and administrative expenses also include amortization of covenant not-to-compete and trade
name intangible assets, the change in value of the contingent consideration, transaction-related costs, and impairment of cloud computing
implementation costs.
Stock-based compensation
The Company accounts for stock-based compensation awards granted to employees and directors based on the awards’ estimated
grant date fair value. The Company estimates the fair value of its stock options using the Black-Scholes option-pricing model. For awards
that vest solely based on continued service (“service-only vesting conditions”), the resulting fair value is recognized on a straight-line basis
over the period during which an employee is required to provide service in exchange for the award, usually the vesting period, which is
generally four years. The Company recognizes the fair value of restricted stock units with performance and service conditions and restricted
stock units with performance, market, and service conditions based upon the probability of the performance conditions being met, using the
graded vesting method. The Company accounts for forfeitures when 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
assumptions and judgments. These estimates involve inherent uncertainties and, if different assumptions had been used, stock-based
compensation expense could have been materially different from the amounts recorded. The assumptions and estimates are as follows:
Value per share of the Company’s common stock. For awards granted subsequent to the Company’s initial public offering, the fair
value of common stock is based on the closing price 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 a weighted average of the historical volatility of its
common stock and, as applicable, the historical average volatilities of similar publicly-traded companies, corresponding to the expected term
of the awards.
Expected term. The Company determines the expected term of awards which contain service-only vesting conditions using the
simplified approach, 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 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 U.S. Treasury yield curve in effect during the period the options were
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 the
foreseeable future.
72
The following information represents the weighted average of the assumptions used in the Black-Scholes option-pricing model for stock
options granted:
Expected term (years)
Expected volatility
Risk free interest rate
Expected dividend yield
Income taxes
2023
N/A
N/A
N/A
N/A
Year Ended December 31,
2022
N/A
N/A
N/A
N/A
2021
6.0
47.0%
1.0%
—
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period
that includes the enactment date. A valuation allowance is recorded 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
sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood
of being realized. The Company recognizes interest and penalties accrued with respect to uncertain tax positions, if any, in the provision for
income taxes in the consolidated statements of operations.
Net income (loss) per share
Basic net income per share is calculated by dividing net income attributable to BlackLine, Inc. by the weighted average number of
shares of common stock outstanding.
For periods where the Company reports net income, the Company will calculate diluted net income per share attributable to BlackLine,
Inc. by adjusting the denominator for potentially dilutive common shares, which are based on the weighted average number of shares of
common stock underlying stock options and unvested stock awards using the treasury stock method, as well as for the potential impact of
our Notes using the treasury stock method or the if-converted method, as applicable. Under the if-converted method, the numerator is
adjusted by adding back interest expense, net of any tax impact.
For periods where the Company reports net losses, the Company will calculate diluted net loss per share attributable to BlackLine, Inc.
by excluding from the denominator potentially dilutive common shares, which are based on the weighted average number of shares of
common stock underlying stock options and unvested stock awards, as well as the potential impact of our Notes, as they are antidilutive. For
these periods, basic net loss per share attributable to BlackLine, Inc. is equivalent to diluted net loss per share attributable to BlackLine, Inc.
Foreign currency
The 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 subsidiaries to the functional currency is recorded in general and administrative expenses in the Company’s consolidated statements
of operations. Monetary assets and liabilities of foreign operations are remeasured at balance sheet date exchange rates, non-monetary
assets and liabilities and equity are remeasured at the historical exchange rates, while results of operations are remeasured at average
exchange rates in effect for the period. Foreign currency transaction gains totaled $0.6 million for the year ended December 31, 2023 and
foreign currency transaction losses totaled $1.9 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively. The
financial statements of BlackLine K.K. are translated to USD using balance sheet date exchange rates for monetary assets and liabilities,
historical rates of exchange for non-monetary assets and liabilities and equity, and average exchange rates in the period for revenues and
expenses. Translation gains and losses are recorded in accumulated other comprehensive income (loss) as a component of stockholders’
equity in the consolidated balance sheets.
73
Recently-adopted accounting pronouncements
There were no recently adopted accounting pronouncements during the year ended December 31, 2023.
Recently-issued accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment
Disclosures. This standard expands annual and interim disclosure requirements for reportable segments, primarily through enhanced
disclosures about significant segment expenses. For public business entities, it is effective for fiscal years beginning after December 15,
2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently
evaluating the impact that the updated standard will have on our disclosures within our consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures, which
requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income
taxes paid. The amendment in the ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. For
public business entities, it is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact
that the updated standard will have on our disclosures within our consolidated financial statements.
Note 3 – Revenues
The 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):
United States
International
Year Ended December 31,
2023
2022
2021
$
$
422,192 $
167,804
589,996 $
373,423 $
149,515
522,938 $
304,603
121,103
425,706
No countries outside the U.S. represented 10% or more of total revenues.
Note 4 – Redeemable Non-Controlling Interest
In September 2018, the Company entered into an agreement with Japanese Cloud Computing and M30 LLC (the “Investors”) to
engage in the investment, organization, management, and operation of BlackLine K.K. that is focused on the sale of the Company's products
in Japan. In October 2018, the Company initially contributed approximately $4.5 million in cash in exchange for 51% of the outstanding
common stock of BlackLine K.K. In November 2021, the Company made a further investment in BlackLine K.K. of $2.3 million that, including
additional investments in BlackLine K.K. of $2.2 million by existing third-party investors in November 2021, maintained the Company's
majority ownership of 51%. As the Company continues to control a majority stake in BlackLine K.K., the entity has been consolidated.
All of the common stock held by the Investors is callable by the Company or puttable by the Investors upon certain contingent events.
Should the call or put option be exercised, the redemption value will be determined based upon a prescribed formula derived from the
discrete revenues 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 the put right available to the Investors in the future, the redeemable non-controlling interest in BlackLine K.K. is classified outside of
permanent equity in the Company’s consolidated balance sheets, and the balance is reported at the greater of the initial carrying amount
adjusted for the redeemable non-controlling interest's 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, additional paid-in capital.
74
Activity in the redeemable non-controlling interest was as follows (in thousands):
Balance at beginning of period
Investment by redeemable non-controlling interest
Net income (loss) attributable to redeemable non-controlling interest (excluding
adjustment to non-controlling interest)
Foreign currency translation
Adjustment to redeemable non-controlling interest
Balance at end of period
2023
December 31,
2022
2021
$
$
23,895 $
—
892
(58)
5,334
30,063 $
28,699 $
—
(369)
(304)
(4,131)
23,895 $
12,524
2,171
(910)
(163)
15,077
28,699
Note 5 – Business Combinations
Acquisition of Data Interconnect
On September 12, 2023, the Company completed the DI Acquisition for cash consideration of $11.4 million, which was paid at the
closing of the acquisition. The DI Acquisition enhances the Company's existing accounts receivable automation solution capabilities through
EIPP. Transaction-related costs, which include, but are not limited to, accounting, legal, and advisory fees related to the transaction, incurred
by the Company totaling approximately $1.2 million were expensed as incurred during the year ended December 31, 2023.
The Company accounted for the transaction as a business combination using the acquisition method of accounting. The total purchase
price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair
values on the acquisition date. The purchase price allocation was finalized as of the filing date of this Annual Report on Form 10-K.
The purchase consideration and major classes of assets and liabilities to which the Company allocated the total fair value of purchase
consideration of $11.4 million were as follows (in thousands):
Cash consideration
Post-acquisition working capital adjustment
Total cash purchase consideration
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Property and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue, current
Operating lease liabilities
Deferred tax liabilities, net
Total consideration
$
$
$
$
11,394
9
11,403
27
916
893
49
8,800
5,104
402
58
(665)
(1,570)
(98)
(402)
(2,111)
11,403
The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to increased offerings to customers
and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisition is not tax deductible.
To determine the estimated fair value of intangible assets acquired, the Company engaged a third-party valuation specialist to assist
management. All estimates, key assumptions, and forecasts were either provided by, or reviewed by, the Company. While the Company
chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of the
Company and not those of any third party. The fair value measurements of the intangible assets were based primarily on significant
unobservable inputs and
75
thus represent a Level 3 measurement as defined in ASC 820. The acquired intangible asset categories, fair value, and amortization periods,
were as follows:
Developed technology
Customer relationships
Amortization Period
(in years)
5
3
$
$
Fair Value
(in thousands)
8,110
690
8,800
The weighted average lives of intangible assets at the acquisition date was 4.8 years.
The estimated fair value of developed technology and customer relationships acquired of $8.1 million and $0.7 million, respectively,
was determined through the use of a third-party valuation firm using the cost approach methodology. The cost approach considers the cost to
replace (or reproduce) the assets and the effects on the assets' values of functional and/or economic obsolescence that has occurred with
respect to the asset. The direct transaction costs of the acquisition were accounted for separately from the business combination and
expensed as incurred.
The revenue and earnings of the acquired business were included in the Company’s results since the acquisition date and have not
been presented separately using pro forma revenues and results of operations as its impact is not material to the Company’s consolidated
financial statements for the periods presented.
FourQ Systems, Inc.
On January 26, 2022, the Company completed the FourQ Acquisition for cash consideration of $160.2 million payable at the closing of
the acquisition. In addition, contingent cash consideration of up to $73.2 million is payable upon certain earnout conditions being met. The
FourQ Acquisition enhances the Company's existing intercompany accounting automation capabilities by driving end-to-end automation of
traditionally manual intercompany accounting processes. The Company incurred transaction-related costs, which include, but are not limited
to, fees for accounting, legal, and advisory services of $3.4 million during the year ended December 31, 2022. The transaction-related costs
were expensed as incurred.
The contingent consideration was classified as a liability and included in contingent consideration on the accompanying consolidated
balance sheet. It is remeasured on a recurring basis at fair value. To estimate the fair value of the contingent consideration liability,
management utilized a Monte Carlo simulation model to value the earnout based on the likelihood of reaching firm-specific targets.
Significant inputs used in the fair value measurement of contingent consideration are the amount and timing of new and incremental
combined intercompany bookings from FourQ and BlackLine, and revenues from a specified FourQ customer over a three-year period
subsequent to the acquisition date. At January 26, 2022, the fair value of the contingent consideration liability was $55.9 million. See “Note
16 - Contingent Consideration” for additional information regarding the valuation of the contingent consideration at December 31, 2023.
The Company accounted for the transaction as a business combination using the acquisition method of accounting. The total purchase
price was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their respective estimated fair
values on the acquisition date.
76
The purchase consideration and major classes of assets and liabilities to which the Company allocated the total fair value of purchase
consideration of $214.2 million are considered final. The following table presents the final allocation of the purchase price (in thousands):
Cash consideration
Post-acquisition working capital adjustment
Contingent consideration
Less: One-time expense related to accelerated vesting
Purchase consideration
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Other assets
Property and equipment
Intangible assets
Goodwill
Accounts payable
Accrued liabilities
Deferred revenue
Deferred tax liabilities, net
Total consideration
$
$
$
$
160,224
(635)
55,947
(1,322)
214,214
1,164
1,853
410
143
659
74,400
154,151
(1,537)
(2,585)
(231)
(14,213)
214,214
The Company believes the amount of goodwill resulting from the acquisition is primarily attributable to increased offerings to customers,
and enhanced opportunities for growth and innovation. The goodwill resulting from the acquisition is not tax deductible.
To determine the estimated fair value of intangible assets acquired, the Company engaged a third-party valuation specialist to assist
management. All estimates, key assumptions, and forecasts were either provided by, or reviewed by the Company. While the Company
chose to utilize a third-party valuation specialist for assistance, the fair value analysis and related valuations reflect the conclusions of the
Company and not those of any third party. The fair value measurements of the intangible assets were based primarily on significant
unobservable inputs and thus represent a Level 3 measurement as defined in ASC 820. The acquired intangible asset categories, fair value,
and amortization periods, were as follows:
Developed technology
Customer relationships
Amortization Period
(in years)
7
3
Fair Value
(in thousands)
$
$
64,900
9,500
74,400
The weighted average lives of intangible assets at the acquisition date was 6.5 years.
The identified intangible assets, developed technology and customer relationships, were valued as follows:
Developed technology – The Company valued the finite-lived developed technology using the multi-period excess earnings model
under the income approach. This method estimates an intangible asset’s value based on the present value of the incremental after-tax cash
flows attributable to the intangible asset. The Company applied judgment which involves the use of significant assumptions with respect to
the discount rate, obsolescence rate, revenue forecasts, research and development costs for future technology, and EBITDA forecasts.
Customer relationships – The Company valued the finite-lived customer relationships using the differential cash flow (with-and-without)
model, an income approach. This method assumes that the value of the intangible asset is equal to the difference between the present value
of the prospective cash flows with the intangible asset in place and the present value of the prospective cash flows without the intangible
asset. The Company applied judgment, which involved the use of significant assumptions with respect to the discount rate and the customer
ramp-up rate.
77
Note 6 – Intangible Assets and Goodwill
The carrying value of intangible assets was as follows (in thousands):
Trade name
Developed technology
Customer relationships
Defensive patent
Trade name
Developed technology
Customer relationships
Defensive patent
December 31, 2023
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
15,977 $
137,368
26,779
2,333
182,457 $
(15,977) $
(66,900)
(19,342)
(1,182)
(103,401) $
—
70,468
7,437
1,151
79,056
December 31, 2022
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
15,977 $
129,258
26,089
2,333
173,657 $
(14,913) $
(54,462)
(12,552)
(866)
(82,793) $
1,064
74,796
13,537
1,467
90,864
$
$
$
$
Amortization expense is included in the following functional statements of operations expense categories. Amortization expense was as
follows (in thousands):
Cost of revenues
Sales and marketing
General and administrative
Year Ended December 31,
2023
2022
2021
$
$
12,438 $
6,791
1,379
20,608 $
11,315 $
6,505
1,911
19,731 $
2,685
5,883
1,911
10,479
The following table presents the Company’s estimate of remaining amortization expense for each of the five succeeding fiscal years
and thereafter for finite-lived intangible assets at December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Thereafter
The following table represents the changes in goodwill (in thousands):
Balance at December 31, 2021
Additions from acquisitions
Balance at December 31, 2022
Additions from acquisitions
Balance at December 31, 2023
Note 7 – Balance Sheet Components
Investments in Marketable Securities
$
$
$
$
19,872
14,011
13,597
13,075
12,412
6,089
79,056
289,710
154,151
443,861
5,104
448,965
Investments in marketable securities presented within current assets on the consolidated balance sheets consisted of the following (in
thousands):
78
Marketable securities
U.S. treasury securities
Commercial paper
U.S. government agencies
Marketable securities
U.S. treasury securities
Corporate bonds
Commercial paper
U.S. government agencies
Amortized
Cost
December 31, 2023
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
523,344 $
241,428
168,078
932,850 $
737 $
1
2
740 $
(107) $
—
(128)
(235) $
523,974
241,429
167,952
933,355
Amortized
Cost
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
418,941 $
64,597
278,406
113,512
875,456 $
9 $
3
—
40
52 $
(1,047) $
(296)
—
(82)
(1,425) $
417,903
64,304
278,406
113,470
874,083
$
$
$
$
The Company’s marketable securities as of December 31, 2023, have a contractual maturity of less than two years. All of our available-
for-sale securities are available for use in our current operations and are categorized as current assets even though the stated maturity of
some individual securities may be one year or more beyond the balance sheet date.
The fair values of available-for-sale securities, by remaining contractual maturity, were as follows (in thousands):
Maturing within 1 year
Maturing between 1 and 2 years
December 31, 2023
Amortized Cost
Fair Value
$
$
906,556 $
26,294
932,850 $
907,107
26,248
933,355
Refer to “Note 8 - Fair Value Measurements” for additional information.
Net gains and losses related to maturities of marketable securities that were reclassified from accumulated other comprehensive loss to
earnings and included in interest income in the accompanying consolidated statements of operations, were $33.9 million for the year ended
December 31, 2023, $8.9 million for the year ended December 31, 2022, and immaterial for the year ended December 31, 2021.
Net gains and losses are determined using the specific identification method. During the years ended December 31, 2023, 2022, and
2021, there were no realized gains or losses related to sales of marketable securities recognized in the Company's accompanying
consolidated statements of operations.
Marketable securities in a continuous loss position for less than 12 months had an estimated fair value of $286.6 million and $521.8
million, and unrealized losses of $0.2 million and $1.4 million at December 31, 2023 and 2022, respectively. There were no marketable
securities in a continuous loss position for greater than 12 months at December 31, 2023 and 2022, respectively.
The Company's marketable securities are considered to be of high credit quality and accordingly, there was no
allowance for credit losses related to marketable securities as of December 31, 2023 or 2022.
Other Assets
Deferred customer contract acquisition costs are included in other assets in the accompanying consolidated balance sheets and totaled
$89.9 million and $89.1 million at December 31, 2023 and 2022, respectively.
Long-lived assets used in operations are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and the undiscounted cash flows estimated to be generated by the asset are less than
the asset’s carrying value. During the years ended
79
December 31, 2023 and 2022, charges for the impairment of cloud computing implementation costs were zero and $5.3 million, respectively.
The impairment charges were determined based on actual costs incurred.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were comprised of the following (in thousands):
Accrued salaries and employee benefits
Accrued income and other taxes payable
Accrued restructuring costs
Other accrued expenses and current liabilities
Note 8 – Fair Value Measurements
December 31,
2023
2022
33,344 $
9,408
1,569
15,369
59,690 $
39,043
9,415
1,737
8,405
58,600
$
$
The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis by level,
within the fair value hierarchy. Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement (in thousands):
Cash equivalents
Money market funds
Commercial paper
U.S. government agencies
Marketable securities
U.S. treasury securities
Commercial paper
U.S. government agencies
Total assets
Liabilities
Contingent consideration
Total liabilities
Cash equivalents
Money market funds
Commercial paper
Marketable securities
U.S. treasury securities
Corporate bonds
Commercial paper
U.S. government agencies
Total assets
Liabilities
Contingent consideration
Total liabilities
Level 1
Level 2
Level 3
Total
December 31, 2023
$
148,298 $
— $
—
—
38,926
19,987
523,974
—
—
672,272 $
—
241,429
167,952
468,294 $
— $
— $
— $
— $
$
$
$
— $
—
—
—
—
—
— $
— $
— $
148,298
38,926
19,987
523,974
241,429
167,952
1,140,566
—
—
Level 1
Level 2
Level 3
Total
December 31, 2022
$
101,919 $
— $
—
59,405
— $
—
—
—
—
—
— $
101,919
59,405
417,903
64,301
278,406
113,471
1,035,405
—
64,301
278,406
113,471
515,583 $
— $
— $
33,549 $
33,549 $
41,549
41,549
417,903
—
—
—
519,822 $
8,000 $
8,000 $
$
$
$
80
The following table summarizes the changes in the contingent consideration liability (in thousands):
Beginning fair value
Additions in the period
Payments in the period
Change in fair value
Ending fair value
Year Ended December 31,
2023
2022
2021
$
$
41,549 $
—
(8,000)
(33,549)
— $
20,732 $
55,947
—
(35,130)
41,549 $
23,490
—
—
(2,758)
20,732
The Company classified the marketable debt securities as available-for-sale debt securities at the time of purchase and reevaluated
such classification as of each balance sheet date. The valuation techniques used to measure the fair values of our instruments that were
classified as Level 1 were derived from quoted market prices for identical instruments in active markets. The valuation techniques used to
measure the fair values of Level 2 instruments were derived from broker reports that utilized quoted market prices for similar instruments.
As a condition of the FourQ Acquisition that occurred on January 26, 2022, the Company agreed to pay additional cash consideration if
FourQ realized certain firm-specific targets, including the amount and timing of new and incremental combined bookings from FourQ and
BlackLine, and revenues from a specified FourQ customer over a three-year period subsequent to the acquisition date. The maximum cash
consideration to be distributed is $73.2 million. Changes in the significant inputs used in the fair value measurement, specifically a change in
new and incremental actual and forecasted combined bookings from FourQ and the Company, can significantly impact the fair value of the
contingent consideration liability. During the years ended December 31, 2023 and 2022, and due to a revision of estimates, the Company
decreased the fair value of the FourQ contingent consideration by $33.5 million and $22.4 million, respectively. At December 31, 2023, the
related liability for the FourQ Acquisition was zero.
In conjunction with the 2013 Acquisition, option holders of BlackLine Systems were allowed to cancel their stock option rights and
receive a cash payment equal to the amount of calculated gain (less applicable expense and other items) had they exercised their stock
options and then sold their common shares as part of the 2013 Acquisition. As a condition of the 2013 Acquisition, the Company is obligated
to pay additional cash consideration to certain equity holders since the Company realized taxable income for the year ended December 31,
2022. The maximum contingent cash consideration payable of $8.0 million was fully paid in the quarter ended December 31, 2023, which
reduced the liability balance for the 2013 Acquisition to zero.
Increases and decreases in the fair value of contingent consideration are recorded as expense or reversals of expense, respectively,
within general and administrative expenses in the consolidated statements of operations.
Note 9 – Property and Equipment
Property and equipment, net consisted of the following (in thousands):
Computers and equipment
Purchased software
Furniture and fixtures
Leasehold improvements
Data center equipment - finance lease
Building - finance lease
Construction in progress
Property and equipment, gross
Less: accumulated depreciation and amortization
Property and equipment, net
December 31,
2023
2022
22,396 $
14,007
4,197
16,198
1,231
1,219
—
59,248
(44,381)
14,867 $
22,324
12,519
4,051
14,943
1,231
1,219
121
56,408
(36,597)
19,811
$
$
Depreciation and amortization expense related to property and equipment was $10.4 million, $9.5 million, and $7.6 million for the years
ended December 31, 2023, 2022, and 2021, respectively.
81
Note 10 – Leases
The Company has entered into various operating and finance lease agreements for office space and data centers. As of December 31,
2023, the Company had 18 leased properties with remaining lease terms of less than one year to eleven years, some of which include
options to extend the leases up to nine years, and some of which include options to terminate the leases within one year.
The components of the lease expense recorded in the consolidated statements of operations were as follows (in thousands):
Finance lease cost:
Amortization of assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable cost
Total lease cost
Year Ended December 31,
2023
2022
2021
$
$
1,020 $
45
6,663
378
1,237
9,343 $
652 $
44
5,767
388
1,190
8,041 $
46
3
4,792
336
741
5,918
Cash flow and other information related to leases was as follows (in thousands, except percentages):
Cash paid for amounts included in the measurement of lease liabilities
Financing cash flows from finance leases
Operating cash flows from operating lease liabilities
Weighted average remaining lease term at end of period (in years):
Finance leases
Operating leases
Weighted average discount rate:
Finance leases
Operating leases
Year Ended December 31,
2023
2022
2021
$
$
1,036
7,467
$
$
662
5,338
$
$
15
5,390
0.8
4.2
3.5 %
5.7 %
1.7
3.9
3.7 %
2.8 %
2.9
4.3
2.2 %
2.3 %
Maturities of lease liabilities at December 31, 2023, for each of the five succeeding fiscal years and thereafter, were (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Less imputed interest
Total lease obligations
Finance Leases
Operating Leases
787 $
4
—
—
—
—
791
(9)
782 $
4,676
5,825
5,010
3,639
2,836
1,073
23,059
(3,213)
19,846
$
$
Refer to “Note 9 - Property and Equipment” for additional information on finance leases.
Note 11 – Convertible Senior Notes
2024 Notes
In August 2019, the Company issued 0.125% Convertible Senior Notes (the “2024 Notes”) due in 2024 for aggregate gross proceeds of
$500.0 million, which included the initial purchasers’ option of $65.0 million aggregate
82
principal amount, in a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The
resale of the 2024 Notes by the initial purchasers to qualified institutional buyers was exempt from registration pursuant to Rule 144A under
the Securities Act. The 2024 Notes were issued pursuant to an indenture between the Company and U.S. Bank National Association, as
trustee.
Interest on the 2024 Notes is payable semi-annually in cash at a rate of 0.125% per annum on February 1 and August 1 of each year,
beginning on February 1, 2020. The 2024 Notes will mature on August 1, 2024, unless redeemed, repurchased, or converted prior to such
date in accordance with their terms.
Prior to the close of business on the business day immediately preceding May 1, 2024, the 2024 Notes will be convertible only under
the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2020, and only during such calendar
quarter, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a
period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar
quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day;
(2) during the five business-day period after any five consecutive trading-day period in which the trading price per $1,000 principal
amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale
price of the common stock and the conversion rate on each such trading day;
(3) if the Company calls any or all of the 2024 Notes for redemption, at any time prior to the close of business on the second scheduled
trading day immediately preceding the redemption date; or
(4) upon the occurrence of specified corporate events set forth in the Indenture.
On or after May 1, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date of
the 2024 Notes, holders of the 2024 Notes, at their option, may convert all or any portion of their 2024 Notes regardless of the foregoing
conditions.
The 2024 Notes have an initial conversion rate of 13.6244 shares of common stock per $1,000 principal amount of 2024 Notes,
equivalent to an initial conversion price of approximately $73.40 per share of common stock. The conversion rate is subject to adjustment for
certain events. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of
cash and shares of its common stock, at its election.
If the Company undergoes a fundamental change, as described in the Indenture, prior to the maturity date of the 2024 Notes, holders of
the 2024 Notes may require the Company to repurchase all or a portion of the 2024 Notes for cash at a price equal to 100% of the principal
amount of the 2024 Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase
date.
The Indenture contains customary events of default with respect to the 2024 Notes and provides that upon certain events of default
occurring and continuing, the Trustee may, and the Trustee at the request of holders of at least 25% in principal amount of the 2024 Notes
shall, declare all principal and accrued and unpaid interest, if any, of the 2024 Notes to be due and payable. In case of certain events of
bankruptcy, insolvency or reorganization, involving the Company, all of the principal of, and accrued and unpaid interest on the 2024 Notes
will automatically become due and payable.
Prior to the adoption of ASU 2020-06 on January 1, 2022, and in connection with the issuance of the 2026 Notes (as defined below) in
March 2021, the Company used approximately $432.2 million of the net proceeds to repurchase $250.0 million aggregate principal amount of
the 2024 Notes. Management also determined the fair value of the liability component of the 2024 Notes being extinguished. To estimate the
fair value of a similar liability that did not have an associated conversion feature, management discounted the contractual cash flows of the
2024 Notes at an estimated interest rate for a comparable non-convertible note. Based on market data available for publicly-traded, senior,
unsecured corporate bonds issued by companies in the same industry and with similar maturity, the Company estimated the implied interest
rate of its 2024 Notes to be approximately 4.94%. The fair value of the liability portion was then deducted from the amount of consideration
transferred and allocated to the liability component. The remaining consideration was allocated to the reacquisition of the equity component
of the 2024 Notes and recognized as a reduction of additional paid-in capital in the amount of $219.3 million. The difference between the fair
value of the liability and its carrying value was recognized as an extinguishment loss in the amount of $7.0 million. The equity component of
the 2024 Notes was not remeasured as it continued to meet the conditions for equity classification for all successive quarters in fiscal 2021.
The debt discount was amortized to interest expense over the term of the 2024 Notes using the effective interest method.
83
In connection with the adoption of ASU 2020-06, the Company reclassified the remaining balance of the conversion feature of
$55.6 million from additional paid-in capital to convertible debt for $31.1 million and retained earnings for $24.5 million. Accordingly, the
Company no longer carries an equity component of the Notes, and no longer incurs non-cash interest expense related to the accretion of the
debt discount associated with the embedded conversion option.
The 2024 Notes consisted of the following (in thousands):
Liability:
Principal
Unamortized debt issuance costs
Net carrying amount
(1)
December 31,
2023
2022
$
$
250,000 $
(767)
249,233 $
250,000
(2,069)
247,931
(1)
Net carrying amount as of December 31, 2023 presented within total current liabilities on the consolidated balance sheet.
The effective interest rate of the 2024 Notes, excluding the conversion option, remained unchanged at 0.65% for December 31, 2023
and 2022.
The Company carries the 2024 Notes at face value less unamortized debt issuance costs on the accompanying consolidated balance
sheets and presents the fair value for disclosure purposes only. The estimated fair value was determined based on the actual bids and offers
of the 2024 Notes in an over-the-counter market on the last trading day of the period. The estimated fair value of the 2024 Notes, based on a
market approach at December 31, 2023 was approximately $255.9 million, which represents a Level 2 valuation.
During the year ended December 31, 2023, the Company recognized $1.3 million of interest expense related to the amortization of debt
issuance costs and $0.3 million of coupon interest expense. During the year ended December 31, 2022, the Company recognized
$1.3 million of interest expense related to the amortization of debt issuance costs and $0.3 million of coupon interest expense.
The 2024 Notes were not convertible at December 31, 2023. It is the Company’s current intent to settle conversions of the 2024 Notes
through “combination settlement”, which involves repayment of the principal portion in cash and any excess of the conversion value over the
principal amount in shares of its common stock.
2026 Notes
In March 2021, the Company issued $1.150 billion aggregate gross proceeds, which included the initial purchasers’ option of
$150.0 million aggregate principal amount, of 0.00% Convertible Senior Notes due 2026 (the “2026 Notes”) in a private placement to
qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2026 Notes were sold to the initial purchasers pursuant to
an exemption from the registration requirements of the Securities Act afforded by Section 4(a) (2) of the Securities Act. The 2026 Notes were
issued pursuant to an indenture (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the
“Trustee”).
The 2026 Notes do not bear regular interest, and the principal amount of the 2026 Notes does not accrete. The 2026 Notes may bear
special interest under specified circumstances related to the Company’s failure to comply with its reporting obligations under the Indenture or
if the 2026 Notes are not freely tradeable as required by the Indenture. The 2026 Notes will mature on March 15, 2026, unless redeemed,
repurchased, or converted prior to such date in accordance with their terms.
The initial conversion rate of the 2026 Notes is 6.0156 shares of common stock per $1,000 principal amount of the 2026 Notes,
equivalent to an initial conversion price of approximately $166.23 per share of common stock.
The conversion rate is subject to adjustment for certain events. Upon conversion, the Company will pay or deliver, as the case may be,
cash, shares of its common stock, or a combination of cash and shares of its common stock, at its election. It is the Company’s current intent
to settle conversions of the 2026 Notes through “combination settlement”, which involves repayment of the principal portion in cash and any
excess of the conversion value over the principal amount in shares of its common stock.
Prior to the close of business on the business day immediately preceding December 15, 2025, the 2026 Notes will be convertible only
under the following circumstances:
(1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, and only during such calendar
quarter, if the last reported sale price of the common stock for at least 20 trading
84
days (whether or not consecutive) in a period of 30 consecutive trading days ending on, and including, the last trading day of the
immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2026 Notes on each
applicable trading day;
(2) during the five business-day period after any five consecutive trading-day period in which the trading price per $1,000 principal
amount of 2026 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale
price of the common stock and the conversion rate on each such trading day;
(3) if the Company calls any or all of the 2026 Notes for redemption, at any time prior to the close of business on the second scheduled
trading day immediately preceding the redemption date; or
(4) upon the occurrence of specified corporate events set forth in the Indenture.
If the Company undergoes a fundamental change, as described in the Indenture, prior to the maturity date, holders may require the
Company to repurchase all or a portion of the 2026 Notes for cash at a price equal to 100% of the principal amount of the 2026 Notes to be
repurchased, plus any accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date.
The 2026 Notes are the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s
indebtedness that is expressly subordinated in right of payment to the 2026 Notes; equal in right of payment to any of the Company’s
unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to
the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including
trade payables) of current or future subsidiaries of the Company.
The Indenture contains customary events of default with respect to the 2026 Notes and provides that upon certain events of default
occurring and continuing, the Trustee may, and the Trustee at the request of holders of at least 25% in principal amount of the 2026 Notes
shall, declare all principal and accrued and unpaid interest, if any, of the 2026 Notes to be due and payable. In case of certain events of
bankruptcy, insolvency or reorganization, involving the Company, all of the principal of, and accrued and unpaid interest on the 2026 Notes
will automatically become due and payable.
Prior to the adoption of ASU 2020-06 on January 1, 2022, in accounting for the issuance of the 2026 Notes, management allocated the
proceeds of the 2026 Notes between liability and equity components. To estimate the fair value of the liability component, management
measured the fair value of a similar liability that did not have an associated conversion feature by discounting the contractual cash flows of
the 2026 Notes at an estimated interest rate for a comparable non-convertible note. The Company applied judgment to determine the interest
rate of 5.65%, which was estimated based on the credit spread implied by the 2026 Notes issuance. Significant inputs used in the model to
determine the applicable interest rate include implied volatility over the term of the 2026 Notes. The equity component representing the
conversion option was determined by deducting the fair value of the liability component from the principal amount of the 2026 Notes. The
difference between the principal amount of the 2026 Notes and the equity component totaling $276.3 million was recorded as a debt
discount. In addition, the Company incurred $21.2 million of transaction costs related to the 2026 Notes, of which $16.1 million and
$5.1 million, respectively, was allocated to the liability and equity components of the 2026 Notes. Transaction costs allocated to the equity
component were recorded as additional debt discount. The equity component of the 2026 Notes was not remeasured as it continued to meet
the conditions for equity classification. The debt discount was amortized to interest expense over the term of the 2026 Notes using the
effective interest method. Additionally, the Company recorded, through equity, a deferred tax liability of $2.4 million, net of the related change
in the valuation allowance, related to the debt issuance costs on the 2026 Notes.
In connection with the adoption of ASU 2020-06 on January 1, 2022, the Company reclassified the remaining balance of the conversion
feature of $271.2 million from additional paid-in capital to convertible debt for $233.4 million and retained earnings for $37.8 million.
Accordingly, the Company no longer carries an equity component of the Notes, and no longer incurs non-cash interest expense related to the
accretion of the debt discount associated with the embedded conversion option.
85
The 2026 Notes consisted of the following (in thousands):
Liability:
Principal
Unamortized debt issuance costs
Net carrying amount
December 31
2023
2022
$
$
1,150,000 $
(9,392)
1,140,608 $
1,150,000
(13,625)
1,136,375
The effective interest rate of the 2026 Notes, excluding the conversion option, remained unchanged at 0.37% for December 31, 2023
and 2022.
The Company carries the 2026 Notes at face value less unamortized debt issuance costs on the accompanying consolidated balance
sheets and presents the fair value for disclosure purposes only. The estimated fair value was determined based on the actual bids and offers
of the 2026 Notes in an over-the-counter market on the last trading day of the period. The estimated fair value of the 2026 Notes, based on a
market approach at December 31, 2023, was approximately $1.0 billion, which represents a Level 2 valuation.
During the years ended December 31, 2023 and 2022, the Company recognized $4.2 million and $4.2 million of interest expense
related to the amortization of debt issuance costs, respectively.
The 2026 Notes were not convertible at December 31, 2023. It is the Company’s current intent to settle conversions of the 2026 Notes
through “combination settlement”, which involves repayment of the principal portion in cash and any excess of the conversion value over the
principal amount in shares of its common stock.
2024 Capped Calls
In connection with the offering of the 2024 Notes, the Company entered into privately-negotiated capped call transactions (the “2024
Capped Calls”) with certain counterparties covering, subject to anti-dilution adjustments, approximately 3.4 million shares of our common
stock and are generally expected to offset the potential economic dilution of our common stock up to the initial cap price. The 2024 Capped
Calls have an initial strike price of $73.40 per share, subject to certain adjustments, which corresponds to the initial conversion price of the
2024 Notes, and an initial cap price of $106.76 per share, subject to certain adjustments.
The Company entered into the 2024 Capped Calls at a cost of approximately $46.2 million, which was recorded as a reduction of the
Company’s additional paid-in capital in the accompanying consolidated financial statements. By entering into the 2024 Capped Calls, the
Company expects to reduce the potential dilution to its common stock upon any conversion of the 2024 Notes (or, in the event a conversion
of the 2024 Notes is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the 2024 Notes, the
market value per share of its common stock exceeds the conversion price of the 2024 Notes, with such reduction subject to the cap price.
The cost of the 2024 Capped Calls is not expected to be tax deductible as the Company did not elect to integrate the 2024 Capped Calls into
the 2024 Notes for tax purposes.
As of December 31, 2023, all of the 2024 Capped Calls remained outstanding.
2026 Capped Calls
In connection with the offering of the 2026 Notes, the Company entered into privately-negotiated capped call transactions (the “2026
Capped Calls”) with certain counterparties covering, subject to anti-dilution adjustments, approximately 6.9 million shares of our common
stock and are generally expected to offset the potential economic dilution of our common stock up to the initial cap price. The 2026 Capped
Calls have an initial strike price of $166.23 per share - subject to certain adjustments, which corresponds to the initial conversion price of the
2026 Notes - and an initial cap price of $233.31 per share, subject to certain adjustments.
The Company entered into the 2026 Capped Calls at a cost of approximately $102.4 million, which was recorded as a reduction of the
Company’s additional paid-in capital in the accompanying consolidated financial statements. By entering into the 2026 Capped Calls, the
Company expects to reduce the potential dilution to its common stock upon any conversion of the 2026 Notes (or, in the event a conversion
of the 2026 Notes is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the 2026 Notes, the
market value per share of its common stock exceeds the conversion price of the 2026 Notes, with such reduction subject to the cap price.
The cost of the 2026 Capped Calls is not expected to be tax deductible as the Company did not elect to integrate the 2026 Capped Calls into
the 2026 Notes for tax purposes.
As of December 31, 2023, all of the 2026 Capped Calls remained outstanding.
86
Note 12 – Restructuring Costs
Fiscal 2023 Restructuring Program
On August 23, 2023, the Company announced its intention to reduce its global workforce by approximately 9%, or approximately 166
total positions. The actions were designed to support the Company’s growth, scale and profitability objectives. The actions were substantially
completed in the fourth quarter of fiscal year 2023 subject to local law and consultation requirements.
During the year ended December 31, 2023, the Company recorded $9.8 million, primarily for severance and other termination benefits,
which occurred in the U.S. and various international locations. The charges were recorded as one-time termination benefits pursuant to ASC
420, Exit or Disposal Cost Obligations. The Company does not anticipate incurring significant additional expenses.
Fiscal 2022 Restructuring Program
On December 7, 2022, the Company announced its intention to reduce its global workforce by approximately 5%, or approximately 95
total positions. The actions were primarily in response to cost reduction initiatives as the Company continues to focus on key growth
priorities. The actions were substantially completed in the fourth quarter of fiscal year 2022 subject to local law and consultation
requirements.
During the years ended December 31, 2023 and 2022, the Company recorded $1.1 million and $3.8 million, respectively, primarily for
severance and other termination benefits, which occurred in the U.S. and various international locations. The charges were recorded as one-
time termination benefits pursuant to ASC 420. The Company does not anticipate incurring additional expenses. For the year ended
December 31, 2022, the Company paid $2.1 million related to the fiscal 2022 restructuring program.
The liability for the fiscal 2023 and 2022 restructuring programs was included in accrued expenses and other current liabilities in the
consolidated balance sheet, and the following tables summarize the related activity for the respective plans for the year ended December 31,
2023 (in thousands):
Accrual balance as of December 31, 2022
Restructuring charges
Cash payments and adjustments
Accrual balance as of December 31, 2023
Year Ended December 31, 2023
Restructuring Program
Fiscal 2023
Fiscal 2022
Total
$
$
— $
9,815
(8,253)
1,562 $
1,737 $
1,149
(2,879)
7 $
1,737
10,964
(11,132)
1,569
All plan adjustments were changes in estimates whereby increases and decreases in charges were generally recorded to operating
expenses in the periods of adjustments.
Note 13 – Equity Awards
2014 and 2016 Plans
On March 3, 2014, the Company adopted the 2014 Stock Incentive Plan (the “2014 Plan”). In November 2016, upon the completion of
the Company’s initial public offering, the Company adopted the 2016 Equity Incentive Plan (the “2016 Plan”) and determined that it will no
longer grant any additional awards under the 2014 Plan. However, the 2014 Plan continues to govern the terms and conditions of the
outstanding awards previously granted under the 2014 plan. Upon the adoption of the 2016 Plan, the maximum number of shares issuable
was 6.2 million, plus a number of shares equal to the number of shares subject to outstanding awards granted under the 2014 Plan after the
date the 2014 Plan is terminated without having been exercised in full. The Company’s Board of Directors (the “Board”) may grant stock
options and restricted stock units to employees, directors and consultants under the 2016 Plan. The aggregate number of shares available
under the 2016 Plan and the number of shares subject to outstanding options automatically adjusts for any changes in the Company’s
outstanding common stock by reason of any recapitalization, spin-off, reorganization, reclassification, stock dividend, stock split, reverse
stock split, or similar transaction. Stock options and restricted stock units generally vest over three to four years and have contractual terms
of ten years.
At December 31, 2023, 18.9 million shares were available for issuance under the 2016 Plan.
87
Stock options - service-only vesting conditions
The following table summarizes activity for awards that contain service-only vesting conditions:
Outstanding at December 31, 2022
Exercised
Forfeited/canceled
Outstanding at December 31, 2023
Exercisable at December 31, 2023
2,431 $
(590) $
(148) $
1,693 $
1,607 $
44.98
33.82
81.37
45.67
43.79
Shares
(in thousands)
Weighted-
Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
(in years)
5.5
4.6
$
$
Aggregate
Intrinsic Value
(in thousands)
64,903
37,077
The weighted average grant date fair value per share of options granted during the year ended December 31, 2021 that contain service
only vesting conditions was $50.77. There were no stock options granted during the years ended December 31, 2023 and 2022. The
aggregate intrinsic value of options exercised that contain service only vesting conditions during the years ended December 31, 2023, 2022
and 2021 was $15.2 million, $13.4 million, and $38.3 million, respectively. Cash received from the exercise of stock options for the years
ended December 31, 2023, 2022, and 2021 was $19.8 million, $4.7 million, and $11.4 million, respectively.
Unrecognized compensation expense relating to stock options that contain service only vesting conditions was $2.7 million at
December 31, 2023, which is expected to be recognized over a weighted-average period of 1.0 year.
Restricted stock units - service-only vesting conditions
The following table summarizes activity for restricted stock units that contain service-only vesting conditions:
Nonvested at December 31, 2022
Granted
Vested
Forfeited/canceled
Nonvested at December 31, 2023
Restricted
Stock Units
(in thousands)
Weighted-Average
Grant Date
Fair Value
2,202 $
1,451 $
(916) $
(529) $
2,208 $
74.42
64.35
72.92
72.77
68.82
At December 31, 2023, the intrinsic value of service-based nonvested restricted stock units was $137.9 million. At December 31, 2023,
total unrecognized compensation cost related to nonvested restricted stock units was $125.8 million and was expected to be recognized over
a weighted-average period of 2.6 years.
Restricted stock units - performance and service conditions
On April 4, 2022, the Compensation Committee of the Board of Directors of BlackLine, Inc. (the “Compensation Committee”) approved
grants of performance and service-based restricted stock units totaling 0.2 million target shares. The number of shares that will vest is
subject to the achievement of certain performance metrics. The grants include three annual performance periods with vesting occurring in
February of the year following the end of each annual performance period. Grant dates will be established upon approval of the performance
metrics for the respective annual performance period, and the grant-date fair value per share will be equal to the closing price on the grant
date for each tranche. The performance metrics for the 2022 performance period were approved in the quarter ended June 30, 2022, and the
grant-date fair value of such awards was $5.3 million. On August 19, 2022, the Compensation Committee approved grants of additional
performance and service-based restricted stock units with similar related performance metrics and vesting conditions for which the grant-date
fair value was $0.3 million.
On March 7, 2023, the Compensation Committee approved grants of performance and service-based restricted stock units totaling
0.3 million target shares. The grants include three annual performance periods with vesting occurring in February of the year following the
end of each annual performance period. Grant dates will be established upon approval of the performance metrics for the respective annual
performance period, and the grant-date fair value per share will be equal to the closing price on the grant date for each tranche. The
performance metrics for the 2023 performance period were approved in the quarter ended March 31, 2023. The grant date fair
88
value of the second tranche of the 2022 grants and the first tranche of the 2023 grants was $4.8 million and $6.3 million, respectively.
Stock-based compensation expense for each tranche will be recognized over the period from grant date to vest date and will be based
on the probable outcome at the end of each reporting period.
The following table summarizes activity for restricted stock units with performance and service vesting conditions with grant dates (in
thousands):
Nonvested at December 31, 2022
Granted
Performance adjustment
Vested
Forfeited/canceled
Nonvested at December 31, 2023
Restricted
Stock Units
(in thousands)
Weighted-Average
Grant Date
Fair Value
69 $
166 $
(28) $
(41) $
(53) $
113 $
75.58
67.17
75.58
75.66
67.23
67.17
The following table summarizes activity for restricted stock units with performance and service vesting conditions with no grant dates
established (in thousands):
Nonvested at December 31, 2022
Granted
Vested
Forfeited/canceled
Nonvested at December 31, 2023
Restricted
Stock Units
(in thousands)
Weighted-Average
Grant Date
Fair Value
138
156
—
(59)
235
N/A
N/A
N/A
N/A
N/A
At December 31, 2023, the intrinsic value of performance and service-based nonvested restricted stock units with established grant
dates was $7.1 million. At December 31, 2023, total unrecognized compensation cost related to performance and service-based nonvested
restricted stock units with established grant dates was $0.5 million and was expected to be recognized over a weighted-average period of 0.2
years.
At December 31, 2023, the intrinsic value of performance and service-based nonvested restricted stock units with no grant dates
established was $14.6 million.
89
Restricted stock units - performance, market, and service conditions
On December 30, 2022, the Compensation Committee approved a grant of performance, market, and service-based restricted stock
units totaling 0.2 million target shares. The number of shares that will vest is subject to the achievement of certain performance metrics and
total shareholder return.
The following table summarizes activity for restricted stock units with performance, market, and service-based conditions:
Nonvested at December 31, 2022
Granted
Vested
Forfeited/canceled
Nonvested at December 31, 2023
Restricted
Stock Units
(in thousands)
Weighted-Average
Grant Date
Fair Value
189 $
—
—
(189) $
—
75.90
75.90
N/A
N/A
N/A
At December 31, 2023, all of the nonvested restricted stock units with performance, market, and service conditions were forfeited,
reducing the nonvested balance to zero.
Employee Stock Purchase Plan
Under the Company’s 2018 Employee Stock Purchase Plan (“ESPP”) eligible employees are granted the right to purchase shares at
the lower 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 is granted 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, 0.8 million shares remained available for issuance at December 31, 2023. The
Company recognized stock-based compensation expense related to the ESPP of $3.3 million, $3.3 million, and $3.8 million for the years
ended December 31, 2023, 2022, and 2021, respectively.
The fair value of ESPP shares granted was estimated using the Black-Scholes option pricing model with the following weighted-
average assumptions:
Risk-free interest rate
Expected term (in years)
Volatility
Year Ended December 31,
2023
4.5% - 5.4%
0.5 - 1
39.8% - 58.5%
2022
1.4% - 4.5%
0.5 - 1
39.3% - 65.5%
2021
0.0% - 0.2%
0.5 - 1
23.4% - 46.6%
At December 31, 2023, total unrecognized compensation cost related to the 2018 ESPP was $2.8 million and was expected to be
recognized over a weighted-average period of approximately one year.
Stock-based compensation expense
Stock-based compensation expense recorded in the Company’s consolidated statements of operations was as follows (in thousands):
Cost of revenues
Sales and marketing
Research and development
General and administrative
Year Ended December 31,
2023
2022
2021
10,342 $
24,152
13,095
30,381
77,970 $
8,595 $
26,310
14,382
26,597
75,884 $
8,410
22,756
11,110
23,594
65,870
$
$
Stock-based compensation capitalized as an asset was $3.5 million, $2.4 million, and $1.8 million in the years ended December 31,
2023, 2022, and 2021, respectively.
The Company recorded $0.1 million, $0.1 million, and $0.6 million of foreign tax benefits attributable to equity awards for the years
ended December 31, 2023, 2022, and 2021, respectively.
90
Note 14 – Income Taxes
The components of loss before income taxes were as follows (in thousands):
United States
International
Year Ended December 31,
2023
2022
62,745 $
(2,236)
60,509 $
(41,534) $
(5,877)
(47,411) $
$
$
2021
(96,836)
(4,023)
(100,859)
The components of the total provision for (benefit from) income taxes were as follows (in thousands):
Current
Federal
State
Foreign
Total current tax expense
Deferred
Federal
State
Foreign
Total deferred tax provision
Total provision for (benefit from) income taxes
Year Ended December 31,
2023
2022
2021
$
$
272 $
859
1,844
2,975
202
100
(1,827)
(1,525)
1,450 $
— $
316
564
880
(12,709)
(1,503)
(188)
(14,400)
(13,520) $
—
63
889
952
—
—
(817)
(817)
135
A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate for the years ended December 31,
2023, 2022, and 2021 was as follows:
Federal statutory income tax rate
State tax, net of federal benefit
Federal tax credits
Change in valuation allowance
Foreign tax differential
Windfall tax benefits, net related to stock-based compensation
Nondeductible officer compensation
Nondeductible transaction costs
Contingent consideration
Nondeductible meals and entertainment
Other
91
Year Ended December 31,
2023
2022
2021
21.0 %
2.7 %
(9.8)%
(13.8)%
2.0 %
4.1 %
6.8 %
0.3 %
(11.6)%
0.7 %
— %
2.4 %
21.0 %
(1.2)%
10.0 %
(1.8)%
(2.3)%
1.1 %
(11.1)%
(1.5)%
15.7 %
(1.1)%
(0.3)%
28.5 %
21.0 %
(0.1)%
6.1 %
(34.0)%
(1.2)%
16.5 %
(7.5)%
— %
— %
(0.5)%
(0.4)%
(0.1)%
Significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
Deferred tax assets
Net operating loss carryforwards
Research and other credits
Capitalized R&D
Stock-based compensation
Operating and finance leases
Business interest carryforward
Accrued expenses and other current liabilities
Other
Total deferred tax assets
Less: valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities
Intangible assets
Prepaid expenses
Operating lease right-of-use and finance lease assets
Accretion on investment
Other
Total deferred tax liabilities
Net deferred taxes
December 31,
2023
2022
$
55,779 $
39,248
28,455
7,811
3,343
—
5,445
779
140,860
(92,079)
48,781
(18,698)
(24,861)
(2,973)
(8,253)
(245)
(55,030)
$
(6,249) $
77,711
32,094
11,919
8,699
2,082
3,113
6,443
1,737
143,798
(99,476)
44,322
(21,295)
(24,406)
(1,564)
(2,154)
(443)
(49,862)
(5,540)
ASC 740, Income Taxes, requires that the tax benefit of net operating losses, temporary differences, and credit carryforwards be
recorded as an asset to the extent that management assesses that realization is “more likely than not.” A valuation allowance is recorded
when it is more likely than not that some of the deferred tax assets will not be realized. Realization of future tax benefits is dependent on the
Company’s ability to generate sufficient taxable income within the carryforward period. For financial reporting purposes, the Company has
incurred losses for two of the past three years. Based on available objective evidence, including the Company’s cumulative history of losses,
management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided
a valuation allowance against certain deferred tax assets. The net deferred tax liability position at December 31, 2023 was related to the
Company’s domestic and foreign tax jurisdictions.
The changes in the valuation allowance were as follows (in thousands):
Valuation allowance, at beginning of year
Increase (decrease) in valuation allowance recorded through earnings
Increase (decrease) in valuation allowance recorded through equity
Valuation allowance, at end of year
Year Ended December 31,
2023
2022
2021
$
$
99,476 $
(7,063)
(334)
92,079 $
32,279 $
2,880
64,317
99,476 $
37,691
42,240
(47,652)
32,279
The decrease in valuation allowance recorded through equity of $0.3 million during the year ended December 31, 2023 is related to
unrealized gains reported in other comprehensive income. The increase in valuation allowance recorded through equity of $64.3 million
during the year ended December 31, 2022 resulted from the adoption of ASU 2020-06, which required the reversal of deferred tax liabilities
associated with the Company’s 2024 and 2026 Notes. The decrease in valuation allowance recorded through equity of $47.7 million during
the year ended December 31, 2021 was related to the issuance of the 2026 Notes.
The decrease in valuation allowance recorded through earnings of $7.1 million for the year ended December 31, 2023 resulted
primarily from the utilization of federal and state net operating loss carryforwards due to domestic profitability, along with the valuation
allowance decrease associated with net deferred tax liabilities from the DI Acquisition, which are a source of taxable income to support the
recognition of existing UK deferred tax assets. The valuation allowance release resulted in a UK deferred tax benefit of $1.7 million for the
year ended December 31, 2023.
92
The increase in valuation allowance recorded through earnings of $2.9 million for the year ended December 31, 2022 resulted primarily
from the effects of the capitalization and amortization of research and development expenses as required by the 2017 Tax Cuts and Job Act,
partially offset by the valuation allowance decrease associated with net deferred tax liabilities acquired from FourQ which are a source of
taxable income to support the recognition of existing BlackLine deferred tax assets. The Company elected to consider the recoverability of
the acquired deferred tax assets before existing BlackLine deferred tax assets. The valuation allowance release associated with the acquired
FourQ net deferred tax liabilities resulted in an U.S. deferred tax benefit of $14.2 million for the year ended December 31, 2022. The increase
in valuation allowance recorded through earnings of $42.2 million for the year ended December 31, 2021 resulted primarily from U.S. federal
and state losses incurred during the period.
The Company did not provide for U.S. income taxes on the undistributed earnings and other outside temporary differences of foreign
subsidiaries as they are considered indefinitely reinvested outside the U.S. At December 31, 2023 and 2022, the amount of temporary
differences related to undistributed earnings and other outside temporary differences upon which U.S. income taxes have not been provided
is immaterial to these consolidated financial statements.
At December 31, 2023, the Company had consolidated federal and state net operating loss carryforwards available to offset future
taxable income of approximately $177.2 million and $127.9 million, respectively. The federal losses do not expire, and the state losses will
begin to expire between 2024 and 2041, depending on the jurisdiction. The Company has federal research and development credits and
foreign tax credits of $22.3 million and $3.2 million, respectively, which begin to expire in 2035 and 2024, respectively. The Company has
state research and development credits and enterprise zone credits of $13.0 million and $0.4 million, respectively, which are indefinite in
expiration and begin to expire in 2024, respectively. Pursuant to Internal Revenue Code Section 382, use of the Company’s net operating
loss carryforwards may be limited if the 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):
Beginning gross unrecognized tax benefits
Increases related to prior year tax positions
Increases related to current year tax positions
Ending gross unrecognized tax benefits
Year Ended December 31,
2023
2022
2021
$
$
5,513 $
274
1,317
7,104 $
4,266 $
162
1,085
5,513 $
2,523
400
1,343
4,266
At December 31, 2023 and December 31, 2022, included in the balance of unrecognized tax benefits is $0.1 million, that if recognized,
would affect the effective tax rate. The Company recorded less than $0.1 million interest and penalties in its provision for income taxes for the
years ended December 31, 2023 and December 31, 2022, respectively, and less than $0.1 million was accrued in interest and penalties at
December 31, 2023 and December 31, 2022, respectively. No interest or penalties were recorded in its provision for the year ended
December 31, 2021.
The Company files U.S. federal, various state, and foreign income tax returns. In the normal course of business, the Company is
subject to examination by taxing authorities. The tax years from 2013 forward remain subject to examination for federal purposes. Generally,
state and foreign tax 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 of limitations 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 of the reporting date.
93
Note 15 – Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except per share
amounts):
Basic net income (loss) per share
Numerator:
Net income (loss) attributable to BlackLine, Inc.
Denominator:
Weighted average shares
Basic net income (loss) per share attributable to BlackLine, Inc.
Diluted net income (loss) per share
Numerator:
Net income (loss) attributable to BlackLine, Inc.
Interest expense
Tax effect of interest expense
Net income (loss) attributable to BlackLine, Inc. for diluted calculation
Denominator:
Weighted average shares
Dilutive effect of securities
Dilutive effect of convertible senior notes
Shares used to calculate diluted net income (loss) per share
Diluted net income (loss) per share attributable to BlackLine, Inc.
Year Ended December 31,
2023
2022
2021
52,833 $
(29,391) $
(115,161)
60,849
59,539
0.87 $
(0.49) $
58,351
(1.97)
52,833 $
5,848
(132)
58,549 $
(29,391) $
—
—
(29,391) $
(115,161)
—
—
(115,161)
60,849
872
10,324
72,045
59,539
—
—
59,539
0.81 $
(0.49) $
58,351
—
—
58,351
(1.97)
$
$
$
$
$
Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying stock options, unvested stock
awards, and Notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net
income per share attributable to BlackLine, Inc. when their effect is dilutive. As of January 1, 2022, the Company adopted ASU 2020-06
using the modified retrospective method. The standard requires the Company to apply the if-converted method in relation to the Notes, which
requires the Company to assume that the Notes were converted using only share settlement at the beginning of the period, resulting in
additional shares outstanding of 3.4 million and 6.9 million for the 2024 Notes and the 2026 Notes, respectively. Using this method, the
numerator is adjusted by adding back interest expense, net of any tax impact, and the denominator is affected by including the effect of
potential share settlement, if the effect is dilutive. Prior to the adoption of ASU 2020-06, the Notes were accounted for using the treasury
stock method for the purposes of net income per share.
The weighted average impact of potentially dilutive securities that were excluded from the diluted per share calculations because they
were anti-dilutive were as follows (in thousands):
Stock options - service-only vesting conditions
Restricted stock units - service-only vesting conditions
Restricted stock units - performance and service conditions
Restricted stock units - performance, market, and service conditions
Total shares excluded from net income (loss) per share
Year Ended December 31,
2023
2022
2021
1,062
1,834
16
73
2,985
2,431
2,202
207
189
5,029
2,739
1,503
—
—
4,242
Additionally, approximately 3.4 million and 6.9 million weighted average shares underlying the conversion option in the 2024 Notes and
the 2026 Notes, respectively, are excluded from the calculation of diluted net loss per share attributable to common stockholders for the
years ended December 31, 2022 and December 31, 2021, respectively, as the effect would be anti-dilutive. The shares are subject to
adjustment, up to approximately 4.7 million shares and 9.9 million shares for the 2024 Notes and the 2026 Notes, respectively, if certain
corporate events occur prior to the maturity dates or if the Company issues a notice of redemption.
94
Note 16 – Contingent Consideration
As a condition of the FourQ Acquisition that occurred on January 26, 2022, the Company agreed to pay additional cash consideration if
FourQ realized certain firm-specific targets, including the amount and timing of new and incremental combined bookings from FourQ and
BlackLine, and revenues from a specified FourQ customer over a three-year period subsequent to the acquisition date. The maximum cash
consideration to be distributed is $73.2 million. Changes in the significant inputs used in the fair value measurement, specifically a change in
new and incremental combined bookings from FourQ and the Company, can significantly impact the fair value of the contingent consideration
liability. During the year ended December 31, 2023, the Company reduced the FourQ contingent consideration to zero. Refer to “Note 2 -
Summary of Significant Accounting Policies” for additional information regarding the valuation of the contingent consideration.
In conjunction with the 2013 Acquisition, option holders of BlackLine Systems were allowed to cancel their stock option rights and
receive a cash payment equal to the amount of calculated gain (less applicable expense and other items) had they exercised their stock
options and then sold their common shares as part of the 2013 Acquisition. As a condition of the 2013 Acquisition, the Company was
obligated to pay additional cash consideration to certain equity holders since the Company realized taxable income for the year ended
December 31, 2022. The maximum contingent cash consideration of $8.0 million was paid during the quarter ended December 31, 2023,
which reduced the liability to zero.
Increases and decreases in the fair value of contingent consideration are recorded as expense or reversals of expense, respectively,
within general and administrative expenses in the consolidated statements of operations.
Note 17 – Commitments and Contingencies
Litigation—From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary
course of business. The Company is not currently a party to any legal proceedings, nor is it aware of any pending or threatened litigation that
would have a material adverse effect on the Company’s business, operating results, cash flows, or financial condition should such litigation
be resolved unfavorably.
Indemnification—In the ordinary course of business, the Company may provide indemnification of varying scope and terms to
customers, vendors, investors, directors, and officers with respect to certain matters, including, but not limited to, losses arising out of its
breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third parties.
These indemnification provisions may survive termination of the underlying agreement and the maximum potential amount of future
payments the Company could be required to make under these indemnification provisions may not be subject to maximum loss clauses. The
maximum potential amount of future payments the Company could be required to make under these indemnification provisions is
indeterminable. The Company has never paid a material claim, nor has it been sued in connection with these indemnification arrangements.
At December 31, 2023 and 2022, the Company has not accrued a liability for these indemnification arrangements because the likelihood of
incurring a payment obligation, if any, in connection with these indemnification arrangements was not probable or reasonably estimable.
Note 18 – Defined Contribution Plan
The Company sponsors a defined contribution retirement plan (the “Plan”) that covers substantially all domestic employees. The
Company makes matching contributions of 100% of each $1 of the employee’s contribution up to the first 3% of the employee’s semi-monthly
compensation and 50% of each $1 of the employee’s contribution up to the next 2% of the employee’s semi-monthly compensation.
Matching contributions to the Plan recorded in the Company’s consolidated statements of operations totaled $7.6 million, $7.4 million, and
$5.9 million for the years ended December 31, 2023, 2022, and 2021, respectively.
Note 19 – Geographic Information
The following table sets forth the Company’s long-lived assets, which consist of property and equipment, net, and operating lease ROU
assets by geographic region (in thousands):
United States
International
Year Ended December 31,
2023
2022
$
$
21,831 $
12,209
34,040 $
22,416
12,103
34,519
95
Note 20 – Subsequent Events
On February 14, 2024, the Compensation Committee approved restricted stock unit grants to employees totaling 0.1 million shares.
Each restricted stock unit entitles the recipient to receive one share of common stock upon vesting of the award. The restricted stock units
are service-based and the vast majority will vest as to one-fourth of the total number of units awarded on the first anniversary of February 20,
2024 and quarterly thereafter for 12 consecutive quarters.
On February 14, 2024, the Compensation Committee approved grants of performance and service-based restricted stock units totaling
less than 0.1 million target shares. The awards are tied 50% to relative total shareholder return measured over a three-year performance
period and 50% to annualized recurring revenue over three annual performance periods with vesting occurring in February of the year
following the end of each performance period. Grant dates will be established upon approval of the performance metrics for the respective
performance periods, and the grant-date fair value per share will be equal to the closing price on the grant date for each tranche.
96
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, or “the Exchange Act” means controls and other procedures of a company that are designed to provide reasonable assurance that
information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized, and reported, within the time periods specified in the SEC’s rules and forms; and that such information is accumulated and
communicated to the company’s management, including its principal executive officers and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. Our management, with the participation of our principal executive officers and principal
financial officer, evaluated the effectiveness of our disclosure controls and procedures at December 31, 2023, the last day of the period
covered by this Annual Report. Based on this evaluation, our principal executive officers and principal financial officer have concluded that, at
December 31, 2023, our disclosure controls and procedures were effective at a reasonable assurance level.
Limitations on the Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures and internal control over financial reporting, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over
financial reporting must reflect the fact that there are resource constraints and our management is required to apply judgment in evaluating
the benefits of possible controls and procedures relative to their costs. The design of any disclosure controls and procedures and internal
control over financial reporting also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Control over Financial Reporting
Our 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
on this evaluation, management concluded that the Company’s internal control over financial reporting was effective at December 31, 2023.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
There 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, 2023 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On November 14, 2023, Karole Morgan-Prager, our Chief Legal and Administrative Officer, adopted a "Rule 10b5-1 trading
arrangement", as defined in Regulation S-K Item 408. The trading arrangement provides for the sale, from time to time, of an aggregate of up
to 10,007 shares of our common stock, and is intended to satisfy the affirmative defense in Rule 10b5-1(c). The number of shares sold under
the trading arrangement will be reduced by the number of shares sold to cover applicable withholding taxes. The duration of the trading
arrangement is until November 15, 2024 or earlier if all transactions under the trading arrangement have been completed.
On November 30, 2023, Kevin Thompson, who is a member of our Board, adopted a "Rule 10b5-1 trading arrangement", as defined in
Regulation S-K Item 408. The trading arrangement provides for the sale, from time to time, of an aggregate of up to 8,000 shares of our
common stock, and is intended to satisfy the affirmative defense in Rule 10b5-1(c). The number of shares sold under the trading
arrangement will be reduced by the number of
97
shares sold to cover applicable withholding taxes. The duration of the trading arrangement is until March 3, 2025 or earlier if all transactions
under the trading arrangement have been completed.
No other officers or directors, as defined in Rule 16a-1(f), adopted, modified, or terminated a Rule10b5-1 trading arrangement as
defined in Regulation S-K Item 408, during the last fiscal quarter.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
98
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item will be included in our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission, or the SEC, within 120 days of the fiscal year ended December 31, 2023, and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item will be included in our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of the fiscal year ended December 31, 2023, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included in our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of the fiscal year ended December 31, 2023, and is incorporated herein by reference.
Securities Authorized for Issuance under Equity Compensation Plan
The information required by this item will be included in our Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed
with the SEC within 120 days of the fiscal year ended December 31, 2023, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of the fiscal year ended December 31, 2023, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is PricewaterhouseCoopers LLP, Los Angeles, CA.
The information required by this item will be included in our Definitive Proxy Statement for the 2024 Annual Meeting of Stockholders to
be filed with the SEC within 120 days of the fiscal year ended December 31, 2023, 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
Proxy Statement for the 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31,
2023 is not deemed “filed” as part of this Annual Report on Form 10-K.
99
Item 15. Exhibit and Financial Statement Schedules
Documents filed as part of this report are as follows:
PART IV
1.
2.
3.
Consolidated Financial Statements:
Our Consolidated Financial Statements are listed in the “Index to Consolidated Financial Statements” under Part II,
Item 8 of this Annual Report on Form 10-K.
Financial Statement Schedules:
Financial Statement Schedules have been omitted as information required is inapplicable or the information is
presented in the consolidated financial statements and the related notes.
Exhibits:
The documents listed in the accompanying index to exhibits are filed or incorporated by reference as part of this
Annual Report on Form 10-K.
Exhibit Index
Exhibit
Number
Description
2.1
3.1
3.2
3.3
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1^
10.2
10.3+
10.4+
10.5+
10.6+
Agreement and Plan of Merger, by and among SLS Breeze
Holdings, Inc., SLS Breeze Intermediate Holdings, Inc., SLS
Breeze Merger Sub, Inc. and BlackLine Systems, Inc., dated as
of August 9, 2013
Certificate of Amendment to the Second Amended and Restated
Certificate of Incorporation of the Registrant, effecting a one-for-
five reverse stock split.
Amended and Restated Certificate of Incorporation of the
Registrant.
Amended and Restated Bylaws of the Registrant.
Specimen Common Stock Certificate of the Registrant.
Description of Registrant’s Securities
Amended and Restated Stockholders’ Agreement, by and among
the Registrant, Silver Lake Sumeru, Iconiq, Therese Tucker and
Mario Spanicciati.
Amended and Restated Registration Rights Agreement, by and
among the Registrant, Silver Lake Sumeru, Iconiq, Therese
Tucker and Mario Spanicciati.
Form of Senior Indenture.
Form of Subordinated Indenture.
Indenture, dated as of August 13, 2019, between the Company
and U.S. Bank National Association.
Form of 0.125% Convertible Senior Note due 2024 (included in
Exhibit 4.7).
Software Development Cooperation Agreement, by and between
the Company and SAP AG, effective as of October 1, 2013.
Amendment No. 1 to Software Development Cooperation
Agreement, by and between the Company and SAP AG, effective
as of October 31, 2018
2014 Equity Incentive Plan and form of equity agreements
thereunder.
Amendment No. 1 to the 2014 Equity Incentive Plan.
Amendment No. 2 to the 2014 Equity Incentive Plan.
Amendment No. 3 to the 2014 Equity Incentive Plan.
100
Incorporated by Reference
Form
S-1
File No.
333-213899
Exhibit
2.1
Filing Date
September 30, 2016
S-1/A
333-213899
10-Q
8-K
S-1
10-K
10-Q
001-37924
001-37924
333-213899
001-37924
001-37924
10-Q
001-37924
S-3
S-3
8-K
8-K
S-1
333- 221500
333- 221500
001-37924
001-37924
333-213899
10-K
001-37924
S-1
S-1
S-1
S-1
333-213899
333-213899
333-213899
333-213899
3.2
3.2
3.1
4.1
4.2
4.2
4.3
4.5
4.6
4.1
4.1
10.1
10.2
10.6
10.7
10.8
10.9
October 17, 2016
December 12, 2016
March 13, 2023
September 30, 2016
February 23, 2023
December 12, 2016
December 12, 2016
November 13, 2017
November 13, 2017
August 13, 2019
August 13, 2019
September 30, 2016
February 28, 2019
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
Exhibit
Number
Description
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21^
10.22^
10.23^
10.24^
10.25
10.26
10.27
10.28
10.29^**
2016 Equity Incentive Plan and the form of equity award
agreements thereunder.
Employee Incentive Compensation Plan of the Company.
2018 Employee Stock Purchase Plan.
Form of Change of Control and Severance Policy.
Executive Employment Agreement, by and between the
Registrant and Therese Tucker, effective as of January 1, 2016.
Employment Offer Letter, by and between the Company and
Karole Morgan-Prager, dated as of May 4, 2015.
Confirmatory Offer Letter, by and between the Registrant and
Karole Morgan-Prager, dated as of September 29, 2016.
Employment Offer Letter, by and between the Company and
Mark Partin, dated as of December 25, 2014.
Confirmatory Offer Letter, by and between the Registrant and
Mark Partin, dated as of September 29, 2016.
Employment Offer Letter, by and between the Registrant and
Marc Huffman, dated as of January 8, 2018.
Employment Agreement between the Company and Therese
Tucker, signed March 5, 2023.
Employment Agreement between the Company and Owen Ryan,
signed March 5, 2023.
Separation Agreement and Release between the Company and
March Huffman, singed March 5, 2023.
Form of Indemnification Agreement between the Registrant and
each of its directors and executive officers.
Office Lease, by and between the Company and Douglas Emmet
2008, LLC, dated November 22, 2010.
First Amendment to Office Lease, by and between the Company
and Douglas Emmett 2008, LLC, dated August 14, 2012.
Second Amendment to Office Lease, by and between the
Company and Douglas Emmett 2008, LLC, dated December 26,
2013.
Third Amendment to Office Lease, by and between the Company
and Douglas Emmett 2008, LLC, dated June 24, 2014.
Fourth Amendment to Office Lease, by and between the
Company and Douglas Emmett 2008, LLC, dated January 29,
2015.
Fifth Amendment to Office Lease, by and between the Company
and Douglas Emmett 2008, LLC, dated October 6, 2016.
Sixth Amendment to Office Lease, by and between the Company
and Douglas Emmett 2008, LLC, dated May 10, 2017.
Seventh Amendment to Office Lease, by and between the
Company and Douglas Emmett 2008, LLC, dated May 18, 2017.
Eighth Amendment to Office Lease, by and between the
Company and Douglas Emmett 2008, LLC, dated May 26, 2021.
Incorporated by Reference
Form
S-1/A
S-1
10-Q
S-1
S-1
S-1
S-1
S-1
S-1
File No.
333-213899
333-213899
001-37924
333-213899
333-213899
333-213899
333-213899
333-213899
333-213899
10-Q
001-37924
8-K
8-K
8-K
S-1
S-1
S-1
S-1
S-1
S-1
001-37924
001-37924
001-37924
333-213899
333-213899
333-213899
333-213899
333-213899
333-213899
S-1/A
333-217981
S-1/A
333-217981
S-1/A
333-217981
Exhibit
10.10
Filing Date
October 17, 2016
10.11
10.2
10.13
10.14
10.16
10.18
10.19
10.20
10.18
10.1
10.2
10.3
10.22
10.25
10.26
10.27
10.28
10.29
10.26
10.27
10.28
September 30, 2016
August 8, 2018
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
May 9, 2018
March 6, 2023
March 6, 2023
March 6, 2023
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
September 30, 2016
May 22, 2017
May 22, 2017
May 22, 2017
Incorporated by Reference
Form
10-Q
8-K
File No.
001-37924
Exhibit
10.1
Filing Date
August 9, 2023
001-37924
10.2
August 13, 2019
Exhibit
Number
10.30
10.31
21.1**
23.1**
24.1**
31.1**
31.2**
31.3**
32.1†
97.1**+
101.INS**
101.SCH**
101.CAL**
101.DEF**
101.LAB**
101.PRE**
104
Description
Ninth Amendment to Office Lease, by and between the Company
and Douglas Emmett 2008, LLC, dated June 15, 2023.
Form of Capped Call Confirmation.
List of subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (included in signature pages hereto).
Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
Certifications of Chief Executive Officers and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Registrant’s Compensation Recovery Policy dated November 7,
2023.
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
Cover Page Interactive Data File (formatted as inline XBRL and
contained in Exhibit 101)
^ Portions of this exhibit (such portions indicated by “[***]”) have been omitted as the Company has determined the omitted information (i) is
not material and (ii) would be competitively harmful to Registrant if publicly disclosed.
** Filed herewith.
+ Indicates management contract or compensatory plan.
† The certifications attached as Exhibit 32.1 that accompany this Annual Report on Form 10-K are deemed furnished and not filed with the
Securities and Exchange Commission and are not to be incorporated by reference into any filing of BlackLine, Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of
this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary
Not applicable.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on February 23, 2024.
SIGNATURES
BLACKLINE, INC.
By:
Name:
Title:
By:
Name:
Title:
/s/ Therese Tucker
Therese Tucker
Co-Chief Executive Officer
/s/ Owen Ryan
Owen Ryan
Co-Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Therese Tucker, Owen Ryan, and Mark Partin, and each of
them, as his or her true and 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, in any 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, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully 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
behalf of the Company and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Therese Tucker
Therese Tucker
/s/ Owen Ryan
Owen Ryan
/s/ Mark Partin
Mark Partin
/s/ Patrick Villanova
Patrick Villanova
/s/ Brunilda Rios
Brunilda Rios
/s/ Kevin Thompson
Kevin Thompson
/s/ Thomas Unterman
Thomas Unterman
/s/ Sophia Velastegui
Sophia Velastegui
/s/ William Wagner
William Wagner
/s/ Barbara Whye
Barbara Whye
/s/ Mika Yamamoto
Mika Yamamoto
/s/ Amit Yoran
Amit Yoran
Co-Chief Executive Officer and Director
(Co-Principal Executive Officer)
Co-Chief Executive Officer and Director
(Co-Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
February 23, 2024
EIGHTH AMENDMENT TO OFFICE LEASE
Exhibit 10.29
CERTAIN INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE
THAT THE COMPANY TREATS AS PRIVATE OR CONFIDENTIAL, [***] INDICATES THAT THE INFORMATION HAS BEEN REDACTED.
This Eighth Amendment to Office Lease (this “Eighth Amendment”), dated May 26, 2021, is made by and between DOUGLAS
EMMETT 2008, LLC, a Delaware limited liability company (“Landlord”), with offices at 1299 Ocean Avenue, Suite 1000, Santa Monica,
California 90401, and BLACKLINE SYSTEMS, INC., a California corporation (“Tenant”), with offices at 21300 Victory Boulevard, Suite 1000,
Woodland Hills, California 91367.
WHEREAS,
A.
Landlord, pursuant to the provisions of that certain Office Lease, dated November 22, 2010 and a certain Memorandum of
Lease Term Dates and Rent dated April 21, 2011 (the “Original Memorandum”, and collectively, the “Original Lease”); as amended by a
certain First Amendment to Office Lease dated August 14, 2012 (the “First Amendment”), by that certain Second Amendment to Office
Lease dated December 26, 2013 (the “Second Amendment”), by that certain Third Amendment to Office Lease dated June 24, 2014, (the
“Third Amendment”), a by that certain Fourth Amendment to Office Lease dated January 29, 2015 (the “Fourth Amendment”), by that
certain Memorandum Of Lease Term Dates And Rent dated May 12, 2015 (“Memorandum Re Third Amendment”), by that certain Fifth
Amendment to Office Lease dated October 6, 2016 (the “Fifth Amendment”), by that certain Sixth Amendment to Office Lease dated May
10, 2017 (the “Sixth Amendment”), that certain Memorandum Of Lease Term Dates And Rent dated March 1, 2018 (“Memorandum Re
Sixth Amendment”), and that certain Seventh Amendment to Office Lease dated May 18, 2017 (the “Seventh Amendment”), leased to
Tenant and Tenant leased from Landlord space in the property located at 21300 Victory Boulevard, Woodland Hills, California 91367 (the
“Building”), commonly known as Suites 900, 1000, 1100, and 1200 (collectively, the “Existing Premises”);
B.
Pursuant to Article 25 of the Original Lease, as amended by Section 9.3 of the First Amendment, Section 11.4 of the Third
Amendment and Section 9.4 of the Sixth Amendment, Tenant exercised its Termination Option in a Termination Notice delivered to Landlord
dated January 29, 2021 with the termination of Lease to be effective at 11:59 p.m. Los Angeles time on January 31, 2022;
C.
Landlord and Tenant have agreed that Tenant shall rescind the Termination Notice and Landlord shall waive Tenant’s
obligation to pay the termination compensation as more particularly described in this Eighth Amendment;
D.
In consideration of Tenant’s agreement to rescind the early termination of the Lease, Landlord has agreed to modify the
payment terms for Tenant’s Fixed Monthly Rent; and
E.
Landlord and Tenant, for their mutual benefit, wish to revise certain other covenants and provisions of the Original Lease, as
amended.
NOW, THEREFORE, in consideration of the covenants and provisions contained herein, and other good and valuable consideration, the
sufficiency of which Landlord and Tenant hereby acknowledge, Landlord and Tenant agree:
1.
Confirmation of Defined Terms. Unless modified herein, all terms previously defined and capitalized in the Original Lease, as
amended, shall hold the same meaning for the purposes of this Eighth Amendment. The Original Lease, as modified by the Original
Memorandum, the First Amendment, Second Amendment, Third Amendment, Memorandum Re Third Amendment, Fourth Amendment, the
Fifth Amendment, Sixth Amendment, Seventh Amendment and this Eighth Amendment, shall hereinafter be referred to as the “Lease.”
EIGHTH AMENDMENT TO OFFICE LEASE
2.
Rescission of Early Termination and Waiver of Termination Compensation. Tenant hereby rescinds its Termination Notice and
unconditionally and irrevocably waives and relinquishes any right to terminate the Lease early under Article 25 of the Original Lease, as
amended by Section 9.3 of the First Amendment, Section 11.4 of the Third Amendment and Section 9.4 of the Sixth Amendment. Landlord
and Tenant agree that Article 25 of the Original Lease, Section 9.3 of the First Amendment, Section 11.4 of the Third Amendment and
Section 9.4 of the Sixth Amendment are hereby void and no longer in force or effect. Inasmuch as Tenant has waived its option to terminate
the Lease early, Landlord hereby waives Tenant’s obligation to pay the termination compensation.
3.
Revision in Fixed Monthly Rent. Landlord agrees that the payment terms for Fixed Monthly Rent shall be modified as follows:
Period Fixed Monthly Rent
January 1, 2022 through January 31, 2023 [***]
February 1, 2023 through January 31, 2024 [***]
Tenant agrees that all deferrals and abatements of Fixed Monthly Rent as set forth in the Sixth Amendment, for the period on and
after January 1, 2022 are hereby null and void and no longer in force or effect. All payments of Fixed Monthly Rent shall be made in
immediately available funds.
4.
Confirmation of the Usable Area and Rentable Area of Premises. Tenant acknowledges and agrees that Landlord engaged an
independent third party space plan audit firm to measure the usable area (“Usable Area”) of the Premises in accordance with the 2017
ANSI/BOMA Standard set forth collectively by the American National Standards Institute and the Building Owners and Managers Association
(“ANSI/BOMA Standard”) as a guideline. Based upon such re-measurement Landlord has been advised that the accurate Usable Area of
the Premises is approximately 80,241 square feet. Based on Landlord’s deemed load factor as indicated hereinbelow, the corrected rentable
area (“Rentable Area”) of the Premises is hereby agreed to be approximately 88,926 square feet.
5.
Option to Extend Term. The Option set forth in Article 23 of the Original Lease and amended in Section 9.1 of the First Amendment,
Section 11.1 of the Third Amendment and Section 9.1 of the Sixth Amendment, shall remain in full force and effect. For avoidance of doubt,
Tenant’s Right of First Offer and Right of First Refusal, and all other rights and obligations of Tenant under the Lease that have not been
expressly modified in this Eighth Amendment, remain in full force and effect in accordance with the terms of the Lease.
6.
Acceptance of Premises. Subject to the terms and conditions of the Lease (including, without limitation, Landlord’s covenants,
representations and warranties), Tenant acknowledges that it has been in possession of the Premises and made its own inspection of and
inquiries regarding the Premises. Therefore, subject to the terms and conditions of the Lease (including, without limitation, Landlord’s
covenants, representations and warranties), Tenant accepts the Premises in its “as-is” condition. Tenant further acknowledges that Landlord
has made no currently effective representation or warranty, express or implied regarding the condition, suitability or usability of the Premises
or the Building for the purposes intended by Tenant except as expressly set forth in the Lease.
7.
Warranty of Authority. If Landlord or Tenant signs as a corporation, or a limited liability company or a partnership, each of the
persons executing this Eighth Amendment on behalf of Landlord or Tenant hereby covenants and warrants that the applicable entity
executing herein below is a duly authorized and existing entity that is qualified to do business in California; that the person(s) signing on
behalf of either Landlord or Tenant have full right and authority to enter into this Eighth Amendment; and that each and every person signing
on behalf of either Landlord or Tenant are authorized in writing to do so.
8.
Broker Representation. Landlord and Tenant represent to one another that it has dealt with no broker in connection with this Eighth
Amendment other than Douglas Emmett Management, LLC and CBRE. Landlord and Tenant shall hold one another harmless from and
against any and all liability, loss,
EIGHTH AMENDMENT TO OFFICE LEASE
damage, expense, claim, action, demand, suit or obligation arising out of or relating to a breach by the indemnifying party of such
representation. Landlord and Tenant agree that Landlord shall have no obligation to pay any commission or fee due to the brokers listed
above created by Tenant’s execution of this Eighth Amendment.
9.
Confidentiality. Landlord and Tenant agrees that, except for matters of record or as required by applicable law, the covenants and
provisions of this Eighth Amendment shall not be divulged to anyone not directly involved in the management, administration, ownership,
lending against, or subleasing of the Premises, other than Tenant’s or Landlord's counsel-of-record or leasing or sub-leasing broker of record.
10.
Governing Law. The provisions of this Eighth Amendment shall be governed by the laws of the State of California.
Reaffirmation. Landlord and Tenant acknowledge and agree that the Lease, as amended herein, constitutes the entire agreement
11.
by and between Landlord and Tenant relating to the Premises, and supersedes any and all other agreements written or oral between the
parties hereto. Furthermore, except as modified in this Eighth Amendment, all other covenants and provisions of the Lease including but not
limited to Section 20.2 of the Original Lease, shall remain unmodified and in full force and effect, and all rights and remedies of Landlord and
Tenant are hereby reserved.
12.
Civil Code Section 1938 Disclosure. Pursuant to California Civil Code Section 1938, Landlord hereby discloses that the Premises
have not undergone an inspection by a Certified Access Specialist to determine whether the Premises meet all applicable construction-
related accessibility standards. A Certified Access Specialist (“CASp”) can inspect the Premises and determine whether the Premises
comply with all of the applicable construction-related accessibility standards under California law. Although California law does not require a
CASp inspection of the Premises, Landlord may not prohibit the Tenant from obtaining a CASp inspection of the Premises for the occupancy
or potential occupancy of Tenant, if requested by Tenant. Landlord and Tenant shall mutually agree on the arrangements for the time and
manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct
violations of construction-related accessibility standards within the Premises.
13.
Submission of Document. The submission of this Eighth Amendment to Tenant shall be for examination purposes only, and does
not constitute a reservation of or an option for Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other offices
or space situated in the Building. Regardless of whether or not (a) Landlord has delivered to Tenant an unexecuted draft or final version of
this Eighth Amendment for Tenant’s review and/or signature, (b) this Eighth Amendment has been executed by Tenant only and delivered to
Landlord for its review and signature, and/or (c) Tenant has made payments of rent and/or security deposit to Landlord pursuant to this
Eighth Amendment, it is understood and agreed that no contractual or other rights shall exist between Landlord and Tenant with respect to
the Premises, nor shall this Eighth Amendment be valid, binding on the parties and/or in effect unless and until this Eighth Amendment has
been fully executed by Landlord and Tenant and such fully-executed Eighth Amendment has been delivered to Tenant.
Digital Counterparts. This Eighth Amendment may be executed in several counterparts, each of which when executed and
14.
delivered shall be deemed an original, and all of which when taken together shall constitute one and the same agreement. The parties agree
that a digital image of this Eighth Amendment as fully-executed (such as in a portable document format (.pdf)) or DocuSign when sent to the
email address of Tenant, its broker (if any), its attorney (if any), or its authorized agent (if any) shall be deemed delivery of a true and correct
original of this Eighth Amendment, and such digital image of this Eighth Amendment shall be admissible as best evidence for the purposes of
state law, Federal Rule of Evidence 1002, and the like statutes and regulations.
15.
Notices. The address of Landlord for notices shall be the following:
1299 Ocean Avenue, Suite 1000
Santa Monica, California 90401
EIGHTH AMENDMENT TO OFFICE LEASE
Attention: Senior Vice President of Property Management
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this document, effective as of the later of the date(s) written below.
LANDLORD:
TENANT:
DOUGLAS EMMETT 2008, LLC,
a Delaware limited liability company
BLACKLINE SYSTEMS, INC.
a California corporation
By: Douglas Emmett Management, Inc.,
a Delaware corporation, its Manager
By:
Name:
Title:
/s/ Karole Morgan-Prager
Karole Morgan-Prager
Chief Legal and Administrative Officer
By:
/s/ Andrew B. Goodman
Senior Vice President
Dated:
6/1/2021
Dated:
5/28/2021
LIST OF SUBSIDIARIES OF THE COMPANY
Name of Subsidiary
Jurisdiction of Incorporation
Exhibit 21.1
BlackLine Systems, Inc.
BlackLine Intermediate, Inc.
Runbook Company, Inc.
FourQ Systems Inc.
FourQ Systems International LLC
BlackLine Systems Pty Ltd.
BlackLine Systems, Ltd.
BlackLine Systems S.A.R.L.
BlackLine Systems Germany GmbH
BlackLine Systems Development & Services Private Limited
BlackLine K.K.
BlackLine Modern Accounting Solutions, S. de R.L. de C.V.
BlackLine C.V.
BlackLine Holdings B.V.
BlackLine International B.V.
BlackLine Sp. z.o.o.
BlackLine Systems SRL
BlackLine Systems Pte. Ltd.
BlackLine Systems Limited
Data Interconnect Ltd.
Rimilia Holdings Ltd.
California
Delaware
Delaware
Delaware
Delaware
Australia
Canada
France
Germany
India
Japan
Mexico
Netherlands
Netherlands
Netherlands
Poland
Romania
Singapore
United Kingdom
United Kingdom
United Kingdom
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-214309, 333-217985, 333-
223528, 333-226818, 333-229968, 333-236715, 333-253522, 333-263045, and 333-269957) and Form S-3 (No. 333-221500) of BlackLine,
Inc. of our report dated February 23, 2024 relating to the financial statements and the effectiveness of internal control over financial reporting,
which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Los Angeles, CA
February 23, 2024
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Therese Tucker, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of BlackLine, Inc.;
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 make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange 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)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, 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, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 23, 2024
BLACKLINE, INC.
By:
Name:
Title:
/s/ Therese Tucker
Therese Tucker
Co-Chief Executive Officer
(Co-Principal Executive Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Owen Ryan, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of BlackLine, Inc.;
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 make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange 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)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, 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, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 23, 2024
BLACKLINE, INC.
/s/ Owen Ryan
By:
Name: Owen Ryan
Title:
Co-Chief Executive Officer
(Co-Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.3
I, Mark Partin, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of BlackLine, Inc.;
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 make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange 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)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, 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, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: February 23, 2024
BLACKLINE, INC.
/s/ Mark Partin
By:
Name: Mark Partin
Title:
Chief Financial Officer (Principal
Financial Officer)
CERTIFICATIONS OF PRINCIPAL EXECUTIVE OFFICERS AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
I, 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
the Annual Report on Form 10-K of BlackLine, Inc. for the fiscal year ended December 31, 2023 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 material respects, the financial condition and results of operations of BlackLine, Inc.
Date: February 23, 2024
By:
Name:
Title:
/s/ Therese Tucker
Therese Tucker
Co-Chief Executive Officer
(Co-Principal Executive Officer)
I, Owen Ryan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the
Annual Report on Form 10-K of BlackLine, Inc. for the fiscal year ended December 31, 2023 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 material respects, the financial condition and results of operations of BlackLine, Inc.
Date: February 23, 2024
/s/ Owen Ryan
By:
Name: Owen Ryan
Title:
Co-Chief Executive Officer
(Co-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 the
Annual Report on Form 10-K of BlackLine, Inc. for the fiscal year ended December 31, 2023 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 material respects, the financial condition and results of operations of BlackLine, Inc.
Date: February 23, 2024
/s/ Mark Partin
By:
Name: Mark Partin
Title:
Chief Financial Officer (Principal
Financial Officer)
BLACKLINE, INC.
COMPENSATION RECOVERY POLICY
As adopted on November 7, 2023
Exhibit 97.1
Blackline, Inc. (the “Company”) is committed to strong corporate governance. As part of this commitment, the Compensation
Committee of the Company’s Board of Directors (the “Board”) has adopted this clawback policy called the Compensation Recovery Policy
(the “Policy”). The Policy is intended to further the Company’s pay-for- performance philosophy and to comply with applicable laws by
providing rules relating to the reasonably prompt recovery of certain compensation received by Covered Executives in the event of an
Accounting Restatement. The application of the Policy to Covered Executives is not discretionary, except to the limited extent provided
below, and applies without regard to whether a Covered Executive was at fault. Capitalized terms used in the Policy are defined below, and
the definitions have substantive impact on its application so reviewing them carefully is important to your understanding.
The Policy is intended to comply with, and will be interpreted in a manner consistent with, Section 10D of the Securities Exchange
Act of 1934 (the “Exchange Act”), with Exchange Act Rule 10D-1 and with the listing standards of the national securities exchange (the
“Exchange”) on which the securities of the Company are listed, including any official interpretive guidance.
Persons Covered by the Policy
The Policy is binding and enforceable against all “Covered Executives.” A Covered Executive is each individual who is or was ever
designated as an “officer” by the Board in accordance with Exchange Act Rule 16a- 1(f) (a “Section 16 Officer”). The Committee may (but is
not obligated to) request or require a Covered Executive to sign and return to the Company an acknowledgement that such Covered
Executive will be bound by the terms and comply with the Policy. The Policy is binding on each Covered Executive whether or not the
Covered Executive signs and/or returns any acknowledgment.
Administration of the Policy
Pursuant to its charter, the Compensation Committee (the “Committee”) of the Board has full delegated authority to administer the
Policy. The Committee is authorized to interpret and construe the Policy and to make all determinations necessary, appropriate, or advisable
for the administration of the Policy. In addition, if determined in the discretion of the Board, the Policy may be administered by the
independent members of the Board or another committee of the Board made up of independent members of the Board, in which case all
references to the Committee will be deemed to refer to the independent members of the Board or the other Board committee. All
determinations of the Committee will be final and binding and will be given the maximum deference permitted by law.
Accounting Restatements Requiring Application of the Policy
If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously
issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the
error were corrected in the current period or left uncorrected in the current period (an “Accounting Restatement”), then the Committee must
determine the Excess Compensation, if any, that must be recovered. The Company’s obligation to recover Excess Compensation is not
dependent on if or when restated financial statements are filed.
Compensation Covered by the Policy
The Policy applies to certain Incentive-Based Compensation (certain terms used in this Section are defined below) that is
Received on or after October 2, 2023 (the “Effective Date”), during the Covered Period while the Company has a class of securities listed
on a national securities exchange. Such
Incentive-Based
Compensation” if the Incentive-Based Compensation is Received by a person after such person became a Section 16 Officer and the
person served as a Section 16 Officer at any time during the performance period for the Incentive-Based Compensation. “Excess
Compensation” means the amount of Clawback Eligible Incentive-Based Compensation that exceeds the amount of Clawback Eligible
Incentive-Based Compensation that otherwise would have been Received had such Clawback Eligible Incentive-Based Compensation been
determined based on the restated amounts. Excess Compensation must be computed without regard to any taxes paid and is referred to in
the listings standards as “erroneously awarded compensation”.
is considered “Clawback Eligible
Incentive-Based Compensation
To determine the amount of Excess Compensation for Incentive-Based Compensation based on stock price or total shareholder
return, where it is not subject to mathematical recalculation directly from the information in an Accounting Restatement, the amount must be
based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or total shareholder return upon which the
Incentive-Based Compensation was Received and the Company must maintain documentation of the determination of that reasonable
estimate and provide that documentation to the Exchange.
“Incentive-Based Compensation” means any compensation that is granted, earned, or vested based wholly or in part upon the
attainment of a Financial Reporting Measure. For the avoidance of doubt, no compensation that is potentially subject to recovery under the
Policy will be earned until the Company’s right to recover under the Policy has lapsed.
“Financial Reporting Measures” are measures that are determined and presented in accordance with the accounting principles
used in preparing the Company’s financial statements, and any measures that are derived wholly or in part from such measures. Stock price
and total shareholder return are also Financial Reporting Measures. A Financial Reporting Measure need not be presented within the
financial statements or included in a filing with the Securities and Exchange Commission.
Incentive-Based Compensation is “Received” under the Policy in the Company’s fiscal period during which the Financial Reporting
Measure specified in the Incentive-Based Compensation award is attained, even if the payment, vesting, settlement or grant of the Incentive-
Based Compensation occurs after the end of that period. For the avoidance of doubt, the Policy does not apply to Incentive-Based
Compensation for which the Financial Reporting Measure is attained prior to the Effective Date.
“Covered Period” means the three completed fiscal years immediately preceding the Accounting Restatement Determination Date.
In addition, Covered Period can include certain transition periods resulting from a change in the Company’s fiscal year.
“Accounting Restatement Determination Date” means the earliest to occur of: (a) the date the Board, a committee of the Board,
or one or more of the officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should
have concluded, that the Company is required to prepare an Accounting Restatement; and (b) the date a court, regulator, or other legally
authorized body directs the Company to prepare an Accounting Restatement.
Repayment of Excess Compensation
The Company must recover Excess Compensation reasonably promptly and Covered Executives are required to repay Excess
Compensation to the Company. Subject to applicable law, the Company may recover Excess Compensation by requiring the Covered
Executive to repay such amount to the Company by direct payment to the Company or such other means or combination of means as the
Committee determines to be appropriate (these determinations do not need to be identical as to each Covered Executive). These means
include (but are not limited to):
(a) requiring reimbursement of cash Incentive-Based Compensation previously paid;
(b) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based
awards (including, but not limited to, time-based vesting awards), without regard to whether such awards are Incentive-Based
Compensation or vest based on the achievement of performance goals;
(c) offsetting the amount to be recovered from any unpaid or future compensation to be paid by the Company or any affiliate of the
Company to the Covered Executive, including (but not limited to) payments of severance that might otherwise be due in connection
with a Covered Executive’s termination of employment and without regard to whether such amounts are Incentive-Based
Compensation;
(d) cancelling outstanding vested or unvested equity awards (including, but not limited to, time- based vesting awards), without regard to
whether such awards are Incentive-Based Compensation; and/or
(e) taking any other remedial and recovery action permitted by law, as determined by the Committee.
The repayment of Excess Compensation must be made by a Covered Executive notwithstanding any Covered Executive’s belief
(whether or not legitimate) that the Excess Compensation had been previously earned under applicable law and therefore is not subject to
clawback.
In addition to its rights to recovery under the Policy, the Company or any affiliate of the Company may take any legal actions it
determines appropriate to enforce a Covered Executive’s obligations to the Company or to discipline a Covered Executive. Failure of a
Covered Executive to comply with their obligations under the Policy may result in (without limitation) termination of that Covered Executive’s
employment, institution of civil proceedings, reporting of misconduct to appropriate governmental authorities, reduction of future
compensation opportunities or change in role. The decision to take any actions described in the preceding sentence will not be subject to the
approval of the Committee and can be made by the Board, any committee of the Board, or any duly authorized officer of the Company or of
any applicable affiliate of the Company. For avoidance of doubt, any decisions of the Company or the Covered Executive’s employer to
discipline a Covered Executive or terminate the employment of a Covered Executive are independent of determinations under this Policy. For
example, if a Covered Executive was involved in activities that led to an Accounting Restatement, the Company’s decision as to whether to
not to terminate such Covered Executive’s employment would be made under its employment arrangements with such Covered Executive
and the requirement to apply this no-fault and non-discretionary clawback policy will not be determinative of whether any such termination is
for cause, although failure to comply with the Policy might be a contributing factor in a termination for cause depending on the terms of such
arrangements.
Limited Exceptions to the Policy
The Company must recover the Excess Compensation in accordance with the Policy except to the limited extent that any of the
conditions set forth below is met, and the Committee determines that recovery of the Excess Compensation would be impracticable:
(a) The direct expense paid to a third party to assist in enforcing the Policy would exceed the amount to be recovered. Before reaching this
conclusion, the Company must make a reasonable attempt to recover such Excess Compensation, document such reasonable
attempt(s) to recover, and provide that documentation to the Exchange; or
(b) Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the
Company, to fail to meet the legal requirements as such.
Other Important Information in the Policy
The Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the Company’s
Chief Executive Officer and Chief Financial Officer, as well as any other applicable laws, regulatory requirements, rules, or pursuant to the
terms of any existing Company policy or agreement providing for the recovery of compensation.
Notwithstanding the terms of any of the Company’s organizational documents (including, but not limited to, the Company’s bylaws),
any corporate policy or any contract (including, but not limited to, any indemnification agreement), neither the Company nor any affiliate of
the Company will indemnify or provide advancement for any Covered Executive against any loss of Excess Compensation. Neither the
Company nor any affiliate of the Company will pay for or reimburse insurance premiums for an insurance policy that covers potential
recovery obligations. In the event that the Company is required to recover Excess Compensation pursuant to the Policy from a Covered
Executive who is no longer an employee, the Company will be entitled to seek recovery in order to comply with applicable law, regardless of
the terms of any release of claims or separation agreement that individual may have signed.
The Committee or Board may review and modify the Policy from time to time.
If any provision of the Policy or the application of any such provision to any Covered Executive is adjudicated to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provisions of the Policy or the application of
such provision to another Covered Executive, and the invalid, illegal or unenforceable provisions will be deemed amended to the minimum
extent necessary to render any such provision or application enforceable.
The Policy will terminate and no longer be enforceable when the Company ceases to be a listed issuer within the meaning of
Section 10D of the Exchange Act.
ACKNOWLEDGEMENT
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I acknowledge that I have received and read the Compensation Recovery Policy (the “Policy”) of BlackLine, Inc. (the “Company”).
I understand and acknowledge that the Policy applies to me, and all of my beneficiaries, heirs, executors, administrators or other
legal representatives and that the Company’s right to recovery in order to comply with applicable law will apply, regardless of the
terms of any release of claims or separation agreement I have signed or will sign in the future.
I agree to be bound by and to comply with the Policy and understand that determinations of the Committee (as such term is used in
the Policy) will be final and binding and will be given the maximum deference permitted by law.
I understand and agree that my current indemnification rights, whether in an individual agreement or the Company’s organizational
documents, exclude the right to be indemnified for amounts required to be recovered under the Policy.
I understand that my failure to comply in all respects with the Policy is a basis for termination of my employment with the Company
and any affiliate of the Company as well as any other appropriate discipline.
I understand that neither the Policy, nor the application of the Policy to me, gives rise to a resignation for good reason (or similar
concept) by me under any applicable employment agreement or arrangement.
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I acknowledge that if I have questions concerning the meaning or application of the Policy, it is my responsibility to seek guidance
from [the Compliance Officer, Human Resources or my own personal advisers].
I acknowledge that neither this Acknowledgement nor the Policy is meant to constitute an employment contract.
Please review, sign and return this form to [Human Resources].
Covered Executive
(print name
(signature)
(date)