10-Q 1 bl-10q_20190331.htm 10-Q bl-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     to     

Commission File Number: 001-37924

 

BlackLine, Inc.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

46-3354276

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

21300 Victory Boulevard, 12th Floor

Woodland Hills, CA 91367

(Address of principal executive offices, including zip code)

 

(818) 223-9008

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  

Indicate by check mark whether the registrant has submitted electronically 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 Rule12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

BL

NASDAQ Global Select Market

The number of shares of the registrant’s common stock outstanding at May 3, 2019 was 55,046,551.

 

 

 

 


BlackLine Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2019

TABLE OF CONTENTS

Part I. Financial Information

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

4

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

4

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the Quarters Ended March 31, 2019 and 2018

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Quarters Ended March 31, 2019 and 2018

6

 

 

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Quarters Ended March 31, 2019 and 2018

7

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2019 and 2018

8

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

 

 

 

Item 2.

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

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4.

Controls and Procedures

29

 

 

Part II. Other Information

 

 

 

Item 1.

Legal Proceedings

29

 

 

 

Item 1A.

Risk Factors

29

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

 

 

 

Item 6.

Exhibits

51

 

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which statements involve substantial risk and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “would,” “continue,” “ongoing” or the negative of these terms or other comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding future financial and operational performance; statements concerning growth strategies including extension of distribution channels and strategic relationships, product innovation, international expansion, customer growth and expansion, customer service initiatives, expectations regarding contract size and increased focus on strategic products, expectations for hiring new talent and expanding our sales organization; our ability to accurately forecast revenue and appropriately plan expenses and investments; the demand for and benefits from the use of our current and future solutions; market acceptance of our solutions; and changes in the competitive environment in our industry and the markets in which we operate. These statements are based upon our historical performance and our current plans, estimates and expectations and are not a representation that such plans, estimates, or expectations will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith beliefs and assumptions as of that time with respect to future events, and are subject to risks and uncertainty.  If any of these risks or uncertainties materialize or if any assumptions prove incorrect, actual performance or results may differ materially from those expressed in or suggested by the forward looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainty, and assumptions that are difficult to predict, including those identified below, under “Part II-Other Information, Item 1A. Risk Factors” and elsewhere herein. Forward-looking statements should not be read as a guarantee of future performance or results, and you should not place undue reliance on such statements. Furthermore, we undertake no obligation to revise or update any forward-looking statements for any reason.

Unless the context otherwise requires, the terms “BlackLine, Inc.,” “the Company,” “we,” “us” and “our” in this Quarterly Report on Form 10-Q refer to the consolidated operations of BlackLine, Inc. and its consolidated subsidiaries as a whole, and references to “Iconiq” refer to any or all of Iconiq Strategic Partners, L.P., ICONIQ Strategic Partners-B, L.P. and Iconiq Strategic Partners Co-Invest, L.P., BL Series.  We refer to, Iconiq, Therese Tucker, and Mario Spanicciati collectively as our Principal Stockholders.

 

3


Part 1 – Financial Information

Item 1.

Financial Statements

BLACKLINE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,676

 

 

$

46,181

 

Marketable securities

 

 

85,079

 

 

 

86,396

 

Accounts receivable, net

 

 

72,343

 

 

 

74,902

 

Prepaid expenses and other current assets

 

 

12,241

 

 

 

14,042

 

Total current assets

 

 

219,339

 

 

 

221,521

 

Capitalized software development costs, net

 

 

8,969

 

 

 

9,023

 

Property and equipment, net

 

 

13,785

 

 

 

13,536

 

Intangible assets, net

 

 

24,708

 

 

 

27,785

 

Goodwill

 

 

185,138

 

 

 

185,138

 

Operating lease right-of-use assets

 

 

13,655

 

 

 

 

Other assets

 

 

39,359

 

 

 

36,865

 

Total assets

 

$

504,953

 

 

$

493,868

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, AND STOCKHOLDERS' EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,173

 

 

$

3,442

 

Accrued expenses and other current liabilities

 

 

18,409

 

 

 

24,705

 

Deferred revenue

 

 

133,024

 

 

 

129,074

 

Short-term portion of operating lease liabilities

 

 

5,017

 

 

 

 

Short-term portion of contingent consideration

 

 

2,008

 

 

 

2,008

 

Total current liabilities

 

 

162,631

 

 

 

159,229

 

Operating lease liabilities, noncurrent

 

 

12,000

 

 

 

 

Contingent consideration

 

 

4,299

 

 

 

4,308

 

Deferred tax liabilities, net

 

 

1,116

 

 

 

1,116

 

Deferred revenue, noncurrent

 

 

196

 

 

 

277

 

Other long-term liabilities

 

 

 

 

 

2,982

 

Total liabilities

 

 

180,242

 

 

 

167,912

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Redeemable non-controlling interest (Note 4)

 

 

4,175

 

 

 

4,387

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

550

 

 

 

547

 

Additional paid-in capital

 

 

459,118

 

 

 

451,571

 

Accumulated other comprehensive income

 

 

45

 

 

 

45

 

Accumulated deficit

 

 

(139,177

)

 

 

(130,594

)

Total stockholders' equity

 

 

320,536

 

 

 

321,569

 

Total liabilities, redeemable non-controlling interest, and stockholders' equity

 

$

504,953

 

 

$

493,868

 

 

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

4


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

 

 

Quarter Ended March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

 

 

 

 

 

 

 

Subscription and support

 

$

61,274

 

 

$

48,625

 

Professional services

 

 

2,855

 

 

 

2,659

 

Total revenues

 

 

64,129

 

 

 

51,284

 

Cost of revenues

 

 

 

 

 

 

 

 

Subscription and support

 

 

10,832

 

 

 

9,381

 

Professional services

 

 

2,786

 

 

 

2,225

 

Total cost of revenues

 

 

13,618

 

 

 

11,606

 

Gross profit

 

 

50,511

 

 

 

39,678

 

Operating expenses

 

 

 

 

 

 

 

 

Sales and marketing

 

 

35,848

 

 

 

29,227

 

Research and development

 

 

10,307

 

 

 

6,929

 

General and administrative

 

 

13,679

 

 

 

11,082

 

Total operating expenses

 

 

59,834

 

 

 

47,238

 

Loss from operations

 

 

(9,323

)

 

 

(7,560

)

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

695

 

 

 

389

 

Interest expense

 

 

 

 

 

(4

)

Other income, net

 

 

695

 

 

 

385

 

Loss before income taxes

 

 

(8,628

)

 

 

(7,175

)

Provision for (benefit from) income taxes

 

 

205

 

 

 

(20

)

Net loss

 

 

(8,833

)

 

 

(7,155

)

Net loss attributable to non-controlling interest (Note 4)

 

 

(250

)

 

 

 

Net loss attributable to BlackLine, Inc.

 

$

(8,583

)

 

$

(7,155

)

Basic net loss per share attributable to BlackLine, Inc.

 

$

(0.16

)

 

$

(0.13

)

Shares used to calculate basic net loss per share

 

 

54,835

 

 

 

53,151

 

Diluted net loss per share attributable to BlackLine, Inc.

 

$

(0.16

)

 

$

(0.13

)

Shares used to calculate diluted net loss per share

 

 

54,835

 

 

 

53,151

 

 

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


5


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(in thousands)

 

 

Quarter Ended March 31,

 

 

2019

 

 

2018

 

Net loss

$

(8,833

)

 

$

(7,155

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Net change in unrealized gains (losses) on marketable securities, net of tax of $0 for the quarters ended March 31, 2019 and 2018

 

94

 

 

 

(70

)

Foreign currency translation

 

78

 

 

 

 

Other comprehensive income (loss)

 

172

 

 

 

(70

)

Comprehensive loss

 

(8,661

)

 

 

(7,225

)

Less: Other comprehensive income attributable to redeemable non-controlling interest

 

(212

)

 

 

 

Comprehensive loss attributable to BlackLine, Inc.

$

(8,449

)

 

$

(7,225

)

 

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

6


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

 

 

 

Quarter Ended March 31, 2019

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Total

 

Balance at December 31, 2018

 

 

54,683

 

 

$

547

 

 

$

451,571

 

 

$

45

 

 

$

(130,594

)

 

$

321,569

 

Stock option exercises

 

 

170

 

 

 

1

 

 

 

2,761

 

 

 

 

 

 

 

 

 

2,762

 

Vesting of restricted stock units

 

 

178

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Acquisition of common stock for tax

    withholding obligations

 

 

 

 

 

 

 

 

(1,729

)

 

 

 

 

 

 

 

 

(1,729

)

Stock-based compensation

 

 

 

 

 

 

 

 

6,515

 

 

 

 

 

 

 

 

 

6,515

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to BlackLine, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,583

)

 

 

(8,583

)

Balance at March 31, 2019

 

 

55,031

 

 

$

550

 

 

$

459,118

 

 

$

45

 

 

$

(139,177

)

 

$

320,536

 

 

 

 

Quarter Ended March 31, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance at December 31, 2017

 

 

52,983

 

 

$

530

 

 

$

419,628

 

 

$

(63

)

 

$

(102,790

)

 

$

317,305

 

Stock option exercises

 

 

459

 

 

 

5

 

 

 

3,448

 

 

 

 

 

 

 

 

 

3,453

 

Acquisition of common stock for tax

    withholding obligations

 

 

 

 

 

 

 

 

(16

)

 

 

 

 

 

 

 

 

(16

)

Stock-based compensation

 

 

 

 

 

 

 

 

4,044

 

 

 

 

 

 

 

 

 

4,044

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

 

 

 

(70

)

Net loss attributable to BlackLine, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,155

)

 

 

(7,155

)

Balance at March 31, 2018

 

 

53,442

 

 

$

535

 

 

$

427,104

 

 

$

(133

)

 

$

(109,945

)

 

$

317,561

 

 

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

7


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

Quarter Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss attributable to BlackLine, Inc.

 

$

(8,583

)

 

$

(7,155

)

Net loss attributable to redeemable non-controlling interest (Note 4)

 

 

(250

)

 

 

 

Net loss

 

 

(8,833

)

 

 

(7,155

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,689

 

 

 

5,394

 

Change in fair value of contingent consideration

 

 

(9

)

 

 

112

 

Stock-based compensation

 

 

6,452

 

 

 

3,974

 

Noncash lease expense

 

 

1,245

 

 

 

 

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

 

 

(409

)

 

 

(67

)

Net foreign currency (gains) losses

 

 

128

 

 

 

(59

)

Deferred income taxes

 

 

 

 

 

(242

)

Provision for (benefit from) doubtful accounts receivable

 

 

25

 

 

 

(51

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,333

 

 

 

5,058

 

Prepaid expenses and other current assets

 

 

1,789

 

 

 

(1,891

)

Other assets

 

 

(2,499

)

 

 

(1,285

)

Accounts payable

 

 

826

 

 

 

(929

)

Accrued expenses and other current liabilities

 

 

(6,240

)

 

 

(7,935

)

Deferred revenue

 

 

3,869

 

 

 

6,558

 

Operating lease liabilities

 

 

(1,340

)

 

 

 

Other long-term liabilities

 

 

 

 

 

340

 

Net cash provided by operating activities

 

 

3,026

 

 

 

1,822

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(29,975

)

 

 

(30,175

)

Proceeds from maturities of marketable securities

 

 

31,795

 

 

 

28,480

 

Capitalized software development costs

 

 

(1,232

)

 

 

(1,653

)

Purchases of property and equipment

 

 

(1,103

)

 

 

(1,634

)

Net cash used in investing activities

 

 

(515

)

 

 

(4,982

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Principal payments on capital lease obligations

 

 

 

 

 

(443

)

Proceeds from exercises of stock options

 

 

2,764

 

 

 

3,453

 

Acquisition of common stock for tax withholding obligations

 

 

(1,729

)

 

 

(16

)

Net cash provided by financing activities

 

 

1,035

 

 

 

2,994

 

Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash

 

 

(56

)

 

 

 

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

 

 

3,490

 

 

 

(166

)

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

 

 

46,455

 

 

 

31,504

 

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

 

$

49,945

 

 

$

31,338

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

49,676

 

 

$

30,864

 

Restricted cash included within prepaid expenses and other current assets at end of period

 

 

 

 

 

200

 

Restricted cash included within other assets at end of period

 

 

269

 

 

 

274

 

Total cash, cash equivalents, and restricted cash at end of period shown in the consolidated statements of cash flows

 

$

49,945

 

 

$

31,338

 

 

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

8


BLACKLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

SUPPLEMENTAL CASH FLOWS DISCLOSURE

(in thousands)

 

 

 

Quarter Ended March 31,

 

 

 

2019

 

 

2018

 

Non-cash financing and investing activities

 

 

 

 

 

 

 

 

Stock-based compensation capitalized for software development

 

$

63

 

 

$

70

 

Capitalized software development costs included in accounts

   payable and accrued expenses and other current liabilities at end

   of period

 

$

140

 

 

$

199

 

Purchases of property and equipment included in accounts

   payable and accrued expenses and other current liabilities at end

   of period

 

$

796

 

 

$

383

 

Leased assets obtained in exchange for new operating lease liabilities

 

$

37

 

 

$

 

 

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

 

 

9


BLACKLINE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 – Company Overview

BlackLine, Inc. and its subsidiaries (the “Company” or “BlackLine”) provide financial accounting close solutions delivered primarily as Software as a Service (“SaaS”).  The Company’s solutions enable its customers to address various aspects of their financial close process including account reconciliations, variance analysis of account balances, journal entry capabilities, and certain types of data matching capabilities.

The Company is headquartered in Woodland Hills, California and has offices in New York, New York; London, the United Kingdom; Melbourne, Australia; Sydney, Australia; Paris, France; Frankfurt, Germany; Hong Kong, China; Vancouver, Canada; Ede, Netherlands; Bucharest, Romania, and Singapore

 

Note 2 – Basis of Presentation, Significant Accounting Policies and Recently-Issued Accounting Pronouncements

The accompanying condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019. The condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the condensed consolidated financial statements. The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by GAAP.  The operating results for the quarter ended March 31, 2019 are not necessarily indicative of the results expected for the full year ending December 31, 2019.

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.

Significant accounting policies

The Company’s significant accounting policies are detailed in "Note 2: Summary of Significant Accounting Policies" of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. On January 1, 2019, the Company adopted Accounting Standards Codification No. 842, Leases, on a prospective basis.

Leases

Financial information related to periods prior to adoption will be as originally reported under ASC 840, Leases. At January 1, 2019, the Company recorded operating lease right-of-use (“ROU”) assets of $14.9 million and operating lease liabilities of $18.3 million. The difference between the leased assets and lease liabilities represents the existing deferred rent liabilities balance at adoption, resulting from historical straight-line recognition of operating leases, which was reclassified upon adoption to reduce the measurement of the leased assets. The adoption of the standard did not have an impact on the Company’s stockholders’ equity, results of operations, or cash flows.

The new standard provides several optional practical expedients in transition. The Company elected the package of three practical expedients permitted under the transition guidance, which eliminates the requirement to reassess whether a contract contains a lease and lease classification.

10


The Company has also 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.  

The Company has leases for office space, equipment, and data centers. The Company’s leases have remaining lease terms of less than one year to five years, some of which include options to extend the leases for up to four years, and some of which include options to terminate the leases within one year.

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 operating lease ROU assets and operating lease liabilities on the Company’s condensed consolidated balance sheets. Leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheet.

ROU assets represent the Company’s right to control an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities 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 used its incremental borrowing rate based on the information available at commencement date in determining the discount rate used to present value lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced on or prior to that date. 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 used 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. 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 generally uses the base, non-cancelable lease term when determining the lease assets and liabilities.

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 operating lease ROU assets and operating lease 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.

Recently issued accounting pronouncements not yet adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. This guidance amends the accounting for credit losses for available-for-sale securities and purchased financial assets with credit deterioration. This guidance is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period after December 15, 2018. The Company has not determined the impact of this guidance on its consolidated financial statements.

In August 2018, the FASB issued guidance which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset. The guidance will be effective for the Company for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

11


In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The guidance will be effective for the Company for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

Recently adopted accounting pronouncements

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company adopted this guidance effective January 1, 2019. See Note 3 – “Leases” for further details.

In February 2018, the FASB issued an Accounting Standard Update (“ASU”) that provides companies with an option to reclassify stranded tax effects resulting from enactment of the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income to retained earnings. The Company adopted this guidance effective January 1, 2019, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued guidance which expands the scope of Accounting Standards Codification Topic 718, Compensation—Stock Compensation, to include share-based payments granted to non-employees in exchange for goods or services. The fair value of awards granted to non-employees will be determined as of the grant date, which will be recognized over the service period. Previous guidance required the awards to be remeasured at fair value periodically when determining the related expense. The Company adopted this guidance effective January 1, 2019, and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

Note 3 – Leases

The following table sets forth the Company’s lease expense for the quarter ended March 31, 2019 (in thousands):

 

Operating lease cost

$

1,513

 

Short-term lease cost

 

218

 

Variable cost

 

137

 

Total lease cost

$

1,868

 

Supplemental information related to the Company’s leases was as follows (in thousands, except percentages):

 

Cash paid for amounts included in the measurement of lease liabilities - operating leases

$

1,527

 

Weighted-average remaining lease term - operating leases (in years)

3.8

 

Weighted-average discount rate - operating leases

 

6

%

Maturities of lease liabilities at March 31, 2019 was (in thousands):

 

2019 (remaining 9 months)

$

4,591

 

2020

 

5,110

 

2021

 

3,756

 

2022

 

2,804

 

2023

 

2,647

 

2024

 

238

 

    Total lease payments

 

19,146

 

Less imputed interest

 

(2,129

)

    Total

$

17,017

 

12


At March 31, 2019, leases entered into that have not yet commenced were immaterial and are not reflected in the table above.

 

Future minimum lease payments under non-cancelable operating leases at December 31, 2018 was (in thousands):

 

2019

$

7,059

 

2020

 

5,307

 

2021

 

3,786

 

2022

 

2,586

 

2023

 

2,638

 

Thereafter

 

237

 

    Total

$

21,613

 

 

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 a Japanese subsidiary (“BlackLine K.K.”) of the Company 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. As the Company controls 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 interests in BlackLine K.K. are classified outside of permanent equity in the Company’s condensed consolidated balance sheet, and the balance is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interests’ share of earnings, or its estimated redemption value. The resulting changes in the estimated redemption amount are recorded within retained earnings or, in the absence of retained earnings, additional paid-in-capital. The estimated redemption value of the call/put option embedded in the redeemable non-controlling interests was $0 at March 31, 2019.

The following table summarizes the activity in the redeemable non-controlling interests for the period indicated below:

 

Balance at December 31, 2018

 

$

4,387

 

Net loss attributable to redeemable non-controlling interest

 

 

(250

)

Foreign currency translation

 

 

38

 

Balance at March 31, 2019

 

$

4,175

 

 

Note 5 – Balance Sheet Components

Investments in Marketable Securities

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

 

 

 

March 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

26,195

 

 

$

3

 

 

$

(12

)

 

$

26,186

 

Corporate bonds

 

 

35,121

 

 

 

23

 

 

 

(9

)

 

 

35,135

 

Commercial paper

 

 

23,758

 

 

 

 

 

 

 

 

 

23,758

 

 

 

$

85,074

 

 

$

26

 

 

$

(21

)

 

$

85,079

 

13


 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

(in thousands)

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

$

25,856

 

 

$

 

 

$

(29

)

 

$

25,827

 

Corporate bonds

 

 

32,030

 

 

 

 

 

 

(60

)

 

 

31,970

 

Commercial paper

 

 

28,599

 

 

 

 

 

 

 

 

 

28,599

 

 

 

$

86,485

 

 

$

 

 

$

(89

)

 

$

86,396

 

 

During the quarters ended March 31, 2019 and 2018, there were no material realized gains or losses related to sales of marketable securities recognized in the Company’s unaudited condensed consolidated statements of operations. Net gains and losses related to maturities of marketable securities that were reclassified from accumulated other comprehensive loss to earnings in the unaudited condensed consolidated statements of operations were $0.3 million for the quarter ended March 31, 2019. Net gains and losses related to maturities of marketable securities that were reclassified from accumulated other comprehensive loss to earnings in the unaudited condensed consolidated statements of operations were not material for the quarter ended March 31, 2018. Net gains and losses are determined using the specific identification method.

 

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

 

 

 

March 31, 2019

 

 

 

Amortized

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

Maturing within 1 year

 

$

77,102

 

 

$

77,095

 

Maturing between 1 and 2 years

 

 

7,972

 

 

 

7,984

 

 

 

$

85,074

 

 

$

85,079

 

 

Prepaid Expenses and Other Current Assets

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Partner referral fees

 

$

2,609

 

 

$

5,219

 

Other prepaid expenses and other current assets

 

 

9,632

 

 

 

8,823

 

 

 

$

12,241

 

 

$

14,042

 

 

Other Assets

Other assets consisted of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Deferred customer contract acquisition costs

 

$

37,266

 

 

$

34,172

 

Restricted cash

 

 

269

 

 

 

274

 

Other assets

 

 

1,824

 

 

 

2,419

 

 

 

$

39,359

 

 

$

36,865

 

 

14


Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities were comprised of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Accrued salaries and employee benefits

 

$

12,110

 

 

$

17,054

 

Accrued income and other taxes payable

 

 

2,906

 

 

 

4,547

 

Short-term tenant improvement allowance

 

 

 

 

 

475

 

Other accrued expenses and current liabilities

 

 

3,393

 

 

 

2,629

 

 

 

$

18,409

 

 

$

24,705

 

 

Note 6 – Fair Value Measurements

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):

 

 

 

March 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

28,707

 

 

$

 

 

$

 

 

$

28,707

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

26,186

 

 

 

 

 

 

 

 

 

26,186

 

Corporate bonds

 

 

 

 

 

35,135

 

 

 

 

 

 

35,135

 

Commercial paper

 

 

 

 

 

23,758

 

 

 

 

 

 

23,758

 

Total assets

 

$

54,893

 

 

$

58,893

 

 

$

 

 

$

113,786

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

6,307

 

 

$

6,307

 

Total liabilities

 

$

 

 

$

 

 

$

6,307

 

 

$

6,307

 

 

 

 

December 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

32,021

 

 

$

 

 

$

 

 

$

32,021

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

25,827

 

 

 

 

 

 

 

 

 

25,827

 

Corporate bonds

 

 

 

 

 

31,970

 

 

 

 

 

 

31,970

 

Commercial paper

 

 

 

 

 

28,599

 

 

 

 

 

 

28,599

 

Total assets

 

$

57,848

 

 

$

60,569

 

 

$