BLACKLINE INC

Previous wording

At June 30, 2024, we had 396,366 individual users across 4,435 customers. Additionally, we continue to build strategic relationships with technology vendors, professional services firms, business process outsourcers, and resellers.

Current wording

At September 30, 2024, we had 397,095 individual users across 4,433 customers. Additionally, we continue to build strategic relationships with technology vendors, professional services firms, business process outsourcers, and resellers.

Previous wording

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.

Current wording

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 accounting principles generally accepted in the United States of America (“GAAP”) and resulted in a change in accounting basis as of the date of the 2013 Acquisition.

Previous wording

We derived approximately 95% of our revenue from subscriptions to our cloud-based software platform and approximately 5% from professional services for the six months ended June 30, 2024. 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 during the six months ended June 30, 2024 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.

Current wording

We derived approximately 95% of our revenue from subscriptions to our cloud-based software platform and approximately 5% from professional services for the nine months ended September 30, 2024. 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 during the nine months ended September 30, 2024 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.

Previous wording

Professional services consist primarily of implementation and consulting services. With the exception of our intercompany accounting solutions acquired from FourQ, 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.

Current wording

Professional services consist primarily of implementation and consulting services. With the exception of our intercompany accounting solutions acquired from FourQ Systems, Inc. (“FourQ”), 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.

Previous wording

We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the 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.

Current wording

We have historically signed a high percentage of agreements with new customers, as well as renewal agreements with existing customers, in the fourth quarter of each year and usually during the last month of the quarter. This can be attributed to buying patterns typical in the 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 nominal due to the fact that we recognize subscription revenue ratably over the term of the customer contract.

Previous wording

For the quarters ended June 30, 2024 and 2023, we had revenues totaling $160.5 million and $144.6 million, respectively. We generated net income attributable to BlackLine, Inc. of $76.7 million and $30.8 million for the quarters ended June 30, 2024 and 2023, respectively.

Current wording

For the quarters ended September 30, 2024 and 2023, we had revenues totaling $165.9 million and $150.7 million, respectively. We generated net income attributable to BlackLine, Inc. of $17.2 million and $11.9 million for the quarters ended September 30, 2024 and 2023, respectively.

Previous wording

For the six months ended June 30, 2024 and 2023, we had revenues totaling $318.0 million and $283.6 million, respectively. We generated net income attributable to BlackLine, Inc. of $87.5 million and $18.8 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

For the nine months ended September 30, 2024 and 2023, we had revenues totaling $483.9 million and $434.3 million, respectively. We generated net income attributable to BlackLine, Inc. of $104.8 million and $30.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

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 June 30, 2024, our dollar-based net revenue retention rate marginally declined from the quarter ended March 31, 2024 due to attrition. 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.

Current wording

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 September 30, 2024, our dollar-based net revenue retention rate marginally increased from the quarter ended June 30, 2024. 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.

Previous wording

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 quarters and six months ended June 30, 2024 and 2023, no single customer accounted for more than 10% of our total revenues.

Current wording

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 quarters and nine months ended September 30, 2024 and 2023, no single customer accounted for more than 10% of our total revenues.

Previous wording

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, 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.

Current wording

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, and restructuring costs. Non-GAAP operating margin is defined as non-GAAP income (loss) 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.

Previous wording

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 (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 0.125% Convertible Senior Notes due in 2024 (the “2024 Notes”), 0.00% Convertible Senior Notes due in 2026 (the “2026 Notes”), and 1.00% Convertible Senior Notes due in 2029 (the “2029 Notes” and, together with the 2024 and 2026 Notes, the “Notes” or “convertible senior notes”), change in fair value of contingent consideration, transaction-related costs, legal settlement gains or costs, restructuring costs, adjustment to the redeemable non-controlling interest to the redemption amount, and gain on extinguishment of convertible senior notes. Diluted non-GAAP net income (loss) 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.

Current wording

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 (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 0.125% Convertible Senior Notes paid in 2024 (the “2024 Notes”), 0.00% Convertible Senior Notes due in 2026 (the “2026 Notes”), and 1.00% Convertible Senior Notes due in 2029 (the “2029 Notes” and, together with the 2024 and 2026 Notes, the “Notes” or “convertible senior notes”), change in fair value of contingent consideration, transaction-related costs, legal settlement gains or costs, restructuring costs, adjustment to the redeemable non-controlling interest to the redemption amount, and gain on extinguishment of convertible senior notes. Diluted non-GAAP net income (loss) 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.

Previous wording

The following table presents a reconciliation of gross profit, gross margin, operating income, operating margin, and net income, the most comparable GAAP measures, to non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, and non-GAAP net income:

Current wording

The following table presents a reconciliation of gross profit, gross margin, operating income (loss), operating margin, and net income, the most comparable GAAP measures, to non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, and non-GAAP net income:

Previous wording

Comparison of Quarters and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of Quarters and Nine Months Ended September 30, 2024 and 2023

Previous wording

The increase in revenues for the quarter and six months ended June 30, 2024, compared to the quarter and six months ended June 30, 2023, was primarily from acquiring new customers, while existing customers grew from additional users and product expansion. The total number of customers and users at June 30, 2024, increased by 4% and 5%, respectively, as compared to June 30, 2023.

Current wording

The increase in revenues for the quarter and nine months ended September 30, 2024, compared to the quarter and nine months ended September 30, 2023, was primarily driven by revenue from new customers, while revenue from existing customers grew from additional users and product expansion. The total number of customers and users at September 30, 2024, increased by 1% and 4%, respectively, as compared to September 30, 2023.

Previous wording

•$2.0 million increase in computer software expenses due to higher spend on cloud hosting services as customers continue to migrate to the Google Cloud Platform, as well as an increase in software purchases;

Current wording

•$2.9 million increase in computer software expenses due to higher spend on cloud hosting services as customers continue to migrate to the Google Cloud Platform, as well as an increase in software purchases;

Previous wording

•$0.9 million decrease in depreciation and amortization primarily due to certain intangible assets being fully amortized; and

Current wording

•$0.4 million decrease in depreciation and amortization due to certain assets being fully amortized.

Previous wording

The increase in total cost of revenues for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to the following:

Current wording

The increase in total cost of revenues for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to the following:

Previous wording

•$4.9 million increase in computer software expenses due to higher spend on cloud hosting services as customers continue to migrate to the Google Cloud Platform, as well as an increase in software purchases; and

Current wording

•$7.8 million increase in computer software expenses due to higher spend on cloud hosting services as customers continue to migrate to the Google Cloud Platform, as well as an increase in software purchases;

Previous wording

•$1.8 million increase in amortization of developed technology due to net additions to software placed into service.

Current wording

•$2.6 million increase in amortization of developed technology due to net additions to software placed into service; and

Previous wording

The decrease in sales and marketing expenses for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, was primarily due to the following:

Current wording

The increase in sales and marketing expenses for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, was primarily due to the following:

Previous wording

•$1.0 million increase in professional fees;

Current wording

•$0.7 million increase in professional fees;

Previous wording

•$1.7 million decrease in marketing expenses due to streamlined marketing efforts; and

Current wording

•$2.4 million decrease in marketing expenses due to timing of our BeyondTheBlack event and streamlined marketing efforts.

Previous wording

The decrease in sales and marketing expenses for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to the following:

Current wording

The decrease in sales and marketing expenses for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to the following:

Previous wording

•$1.7 million decrease in marketing expenses due to streamlined marketing efforts; partially offset by

Current wording

•$4.1 million decrease in marketing expenses due to timing of our BeyondTheBlack event and streamlined marketing efforts; and

Previous wording

•$0.9 million decrease in salaries, benefits, and stock-based compensation due to a decrease in headcount, partially offset by an increase in average salaries, commissions, and bonuses.

Current wording

•$2.4 million decrease in salaries, benefits, and stock-based compensation driven primarily by a decrease in headcount, partially offset by an increase in average salaries and bonuses; partially offset by

Previous wording

•$0.5 million increase in capitalized software costs due to a focus on cloud-based solutions and development of new solution offerings. Collectively, these increases resulted in a decrease in net expenses.

Current wording

•$2.3 million increase in capitalized software costs due to a focus on cloud-based solutions and development of new solution offerings. Collectively, these increases resulted in a decrease in net expenses;

Previous wording

•$0.8 million increase in professional fees; and

Current wording

•$0.4 million decrease in professional fees; and

Previous wording

•$1.2 million decrease in transaction-related costs related to the FourQ acquisition; and

Current wording

•$0.4 million decrease in transaction-related costs related to the FourQ Acquisition; partially offset by

Previous wording

•$2.0 million decrease in salaries, benefits, and stock-based compensation driven primarily by a decrease in average salaries from an increase in offshore headcount;

Current wording

•$2.0 million increase in salaries, benefits, and stock-based compensation driven primarily by an increase in headcount and bonuses, partially offset by a decrease in average salaries from an increase in offshore headcount.

Previous wording

The decrease in research and development expenses for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to the following:

Current wording

The decrease in research and development expenses for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to the following:

Previous wording

•$0.3 million increase in capitalized software costs due to enhanced functionality of our solutions and development of new solution offerings. Collectively, these increases resulted in a decrease in net expenses; partially offset by

Current wording

•$2.6 million increase in capitalized software costs due to a focus on cloud-based solutions and development of new solution offerings. Collectively, these increases resulted in a decrease in net expenses;

Previous wording

•$0.9 million decrease in transaction-related costs related to the FourQ acquisition; and

Current wording

•$1.1 million decrease in transaction-related costs related to the FourQ Acquisition; and

Previous wording

•$0.5 million increase in computer software expenses to support business growth.

Current wording

•$0.4 million increase in computer software expenses to support business growth.

Previous wording

•$25.5 million increase in the period due to the decrease in the fair value of FourQ contingent consideration that occurred in the quarter ended June 30, 2023 (refer to “Note 6 - Fair Value Measurements”);

Current wording

•$11.1 million increase in the period due to the decrease in the fair value of FourQ contingent consideration that occurred in the quarter ended September 30, 2023 (refer to “Note 6 - Fair Value Measurements”); and

Previous wording

•$1.9 million increase due to net foreign currency losses due to the strengthening of the U.S. Dollar across multiple currencies;

Current wording

•$3.9 million decrease due to an increase in net foreign currency gains due to the strengthening of multiple currencies against the U.S. Dollar;

Previous wording

•$0.4 million decrease in costs related to internal strategic projects.

Current wording

•$1.5 million decrease in costs related to the Data Interconnect Acquisition and internal strategic projects.

Previous wording

The increase in general and administrative expenses for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to the following:

Current wording

The increase in general and administrative expenses for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to the following:

Previous wording

•$22.4 million increase due to the decrease in the fair value of FourQ contingent consideration that occurred in the six months ended June 30, 2023 (refer to “Note 6 - Fair Value Measurements”);

Current wording

•$33.5 million increase in the period due to the decrease in the fair value of FourQ contingent consideration that occurred in the nine months ended September 30, 2023 (refer to “Note 6 - Fair Value Measurements”);

Previous wording

•$7.8 million increase in salaries, benefits, and stock-based compensation primarily related to an increase in average headcount and average salaries that includes strategic initiatives to support long-term growth;

Current wording

•$13.9 million increase in salaries, benefits, and stock-based compensation primarily related to an increase in average headcount and average salaries that includes strategic initiatives to support long-term growth; and

Previous wording

•$0.4 million increase in computer software expenses to support automation and scalability; partially offset by

Current wording

•$0.6 million increase in computer software expenses to support automation and scalability; partially offset by