IPO Preview: Blackline, A Tech IPO With Promising Outlook
Summary
Blackline (Pending:BL) is expected to IPO on Friday, (10.28.16). The company initially filed for the IPO on Sept. 30, 2016. We previewed the deal to premium subscribers here. The company hopes to raise approximately $107.3 million through its sale of approximately 8.6 million shares at a price range of $13 to $15. BlackLine intends to use a portion of the net proceeds of this IPO to pay down the balance on its current credit facility which is approximately $35.7 million. Additional use of the funds include: general corporate purposes, working capital, research and development activities, sales and marketing, and other administrative matters.
If it prices at the range's midpoint, and underwriters exercise in full their option to purchase additional shares, the company's fully diluted market value will be approximately $708.70 million. Underwriters for the IPO include: Pacific Crest Securities, Raymond James and Associates, Robert W. Baird & Co., and William Blair and Company.
Business Summary: Provider of SaaS Products to the Financial & Accounting Industries
(Blackline S-1/A Form, SEC Filing)
Based in Woodland Hills, California, BlackLine Inc. provides financial accounting solutions delivered though a SaaS cloud-based platform. Their platform is used for organizations of all types and sizes in the US and worldwide. Their platform has seven core products, including Account Reconciliation, Task Management, Transaction Matching, Journal Entry, Variance Analysis, Consolidation Integrity Manager, and Daily Reconciliation. BlackLine introduced two new solutions in November 2015, Intercompany Hub and Insights. Customers can pick and choose between products which best fit their needs. Its Software solutions are sold primarily through a direct sales force. The company derives nearly 95 percent of its revenue from subscriptions, and a majority of those subscriptions are one-year non-cancellable contracts. As of June 30, 2016, Blackline had more than 1,500 customers across 120 countries.
The company has been successful raising money in the private sector. In August 2013, BL raised $220 million in private equity funding from: Silver Lake Partners, Iconiq Capital, and Silver Lake Sumeru. Post-IPO, Silver Lake Sumeru, will own 38.5% of the company.
Executive Management Highlights
CEO and Founder Therese Tucker started the company in 2001. She previously worked for SunGard Treasury Systems as Chief Technology Officer, and at First National Bank of Nebraska. She was honored in 2011 by the San Fernando Valley Business Journal as "Woman of the Decade," and the same year she earned the Stevie American Business Award for "Software Executive of the Year." Ms. Tucker earned a B.S. in Computer Science and Mathematics from the University of Illinois at Urbana-Champaign.
Strong Financial Performance
BL has significantly grown revenue and its customer base since its founding. For the six months ended June 30, 2015 and 2016, BL generated $37.5M and $55.6M in revenue, respectively, a 48.3% increase. For the years ended December 31, 2014 and 2015, revenue was $51.7M and $83.6M, respectively, a 61.7% increase. The company lacks profitability and incurred net losses of: $16.8M and $24.7M, for year ended 2014 and 2015, respectively. Gross margin was 80.7 percent and 80.8 percent for the year ended 2015 and last six months ended June 30, 2016, respectively.
Valuation and Competitor Comparison
At an estimated market cap value of $708.70 million, Blackline will trade at approximately 6.97 price/sales (using last twelve months' sales ended June 30, 2016). This valuation is in line with the software industry average price/sales multiple of 5.91x and annual revenue growth of 5.8% as well as will its competitor Workiva (NYSE: WK), which trades at a price/sales multiple of 4.16x and 28.73% revenue growth.
Comparison |
Price/Sales |
Revenue Growth |
Market Cap |
Blackline |
6.97x |
48.3% |
$708.7M (estimated) |
Workiva |
4.16 |
28.73% |
$683.47M |
Software Industry Average |
5.91x |
5.8% |
$19.56B |
(Research at Fidelity.com)
Conclusion: Buy
Blackline has shown significant growth, both in revenue and customer base and its poised for continued growth as the market for financial accounting management tools expands.
Blackline has been successful raising money in the private sector, which we believe bodes well for its ability to perform successful in the public sector. In addition, we are impressed by management.
At its current valuation, BL is a good investment, and we recommend investors consider purchasing shares in this IPO.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BL over the next 72 hours.
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