Blackline Safety Corp., a global leader in connected safety technology, reported record fiscal second quarter financial results for the period ended April 30, 2022.
Management Commentary
“We generated another quarter of robust top-line growth reaching revenue of $16.7 million, not including $0.8 million of orders that were at the end of the quarter and are expected to be realized in Q3. We continued to deliver for our customers despite difficult operating conditions, including the ongoing global supply chain challenges, which has temporarily driven cost increases and extended sales cycle times,” said Cody Slater, CEO and Chair of Blackline Safety. “We saw a return to growth in Canada with revenue up 65%, while the United States (“U.S.”) and Rest of World maintained strong growth of 51% and 62%, respectively. However, we saw disappointing sales in our European market with growth of only 9%.
“Service margins have remained extremely strong at nearly 70%. Although product margins continue to be affected by elevated component and freight costs, the majority of lifetime value for most of our products is generated by attaching higher margin recurring service revenue. For example, every $1 in G7 wearable sales translates to approximately $4 in lifetime recurring service revenue. Additionally, our service business is performing well with net dollar retention(1) of 105% and total software services revenue of $7.8 million which was up 26% year-over-year and 5% sequentially. Delayed deployments of large orders received in the previous two quarters reduced the growth rate of our service revenue in Q2, but we see these deployments being completed in the second half of the year, which should accelerate service growth.
“In the past 18 months our ‘Invest to Grow’ strategy has allowed Blackline to generate excellent growth as we have expanded our capabilities to meet the needs of our Global market. This investment has positioned the Company to maintain our strong top-line growth while enabling a more conservative approach to our expenses. Going forward, we see this resulting in Q4 operating expenses at or below those of our Q2. Collectively, we expect our operating expense management and margin improvement, along with continued top-line growth to drive our overall financial performance.
“We continue to see healthy demand for our products and services, and to maximize these opportunities, we appointed Sean Stinson as Chief Growth Officer in May. Sean is a proven leader who has been instrumental building the commercial engine that drives our North America and Rest of World sales. We expect that bringing Europe under this umbrella will allow us to better capture this market opportunity.
“The forthcoming launch of our G6 product continues to generate positive early feedback and interest as we look to disrupt the $240 million annual zero-maintenance gas detection market. The commercial rollout of G6 had been forecast to launch in July, however we have pushed out the launch date to October as supply chain challenges have put demands on our development teams to service products currently in the market. The newly acquired Swift Labs Inc. (“Swift Labs”) engineering team gives us the additional capacity needed to mitigate risk to the G6 schedule while ensuring deliverability of our current portfolio despite supply chain challenges. We are eager to launch G6 at the NSC Safety Congress & Expo, North America’s largest event for workplace safety, in September.”
Fiscal Second Quarter 2022 and Recent Financial and Operational Highlights
- Total revenue of $16.7 million, a 43% increase over the prior year’s Q2
- Service revenue of $8.8 million, a 24% increase over the prior year’s Q2
- Product revenue of $7.9 million, a 72% increase over the prior year’s Q2
- Continued strong growth of 51% in the U.S. market compared to the prior year’s Q2
- 62% revenue growth in Rest of World market compared to the prior year’s Q2
- Canadian market returned to growth after two years with an increase of $2.0 million
- Annual recurring revenue(1) growth of 24% year-over-year to $30.8 million
- Closed acquisition of Swift Labs, an Internet of Things design and engineering consulting firm, for consideration of $4.5 million in cash and shares
- Appointed Sean Stinson as Chief Growth Officer to oversee global revenue growth, channel management and customer support functions
- Named by Financial Times as one of the fastest growing companies in The Americas for 2022
- Awarded four 2022 top Industrial Hygiene Awards by Occupational Health & Safety
(1) This news release presents certain non-GAAP and supplementary financial measures, including key performance indicators used by management and typically used by companies in the software-as-a-service industry, as well as non-GAAP ratios to assist readers in understanding the Company’s performance. Further details on these measures and ratios are included in the “Key Performance Indicators,” and “Non-GAAP and Supplementary Financial Measures” sections of this news release.
Key Financial Information
Fiscal second quarter revenue was $16.7 million, an increase of 43% from $11.7 million in the prior year quarter, with Canada up 65%, Rest of World up 62% and U.S. revenues up 51% being the largest geographic growth regions quarter-over-quarter.
Service revenue during the fiscal second quarter was $8.8 million, an increase of 24% compared to $7.1 million in the prior year quarter. Software services revenue increased 26% to $7.8 million, operating lease revenue decreased 30% to $0.6 million and rental revenue increased 384% to $0.5 million. Retention rates of our existing customers across geographic regions and industry sectors remained robust. Service revenue increases within our existing customer base contributed $0.6 million during the quarter. There were also adverse effects of $0.6 million from customers who renewed fewer active devices after experiencing workforce reductions during the last twelve months. In addition, certain customers declined to renew their service plans resulting in negligible reductions. Rental revenue growth continues to be strong, establishing the business line as a more material contributor to Blackline due to the application of the Company’s complete suite of connected worker and area monitoring solutions in the industrial turnaround and maintenance market.
Product revenue during the fiscal second quarter was $7.9 million, an increase of 72% compared to $4.6 million in the prior year quarter, which reflects the Company’s investment in its expanded sales network across North America, the European Union and other geographies over the last twelve months.
Overall gross margin percentage for the fiscal second quarter was 42%, a 9% decrease compared to the prior year quarter driven by a heavier product versus service mix and lower product margins. Service gross margin percentage was 69% in the fiscal second quarter compared to 68% in the prior year quarter due to higher overall service volumes, partially offset by higher carrier costs for the connectivity of the Company’s devices as well as increases in personnel costs for Safety Operations Centre team members and the product development support team. Product gross margin percentage decreased to 13% from 25% in the prior year quarter but improved from 10% in the fiscal first quarter of 2022. The decrease from the prior year period is due to higher material, supply and freight costs resulting from global supply chain challenges.
Net loss and EBITDA were $14.5 million and ($12.9) million, respectively, in the fiscal second quarter, compared to net loss and EBITDA of $8.6 million and ($7.2) million in the prior year quarter. The increase in losses is attributable to the Company’s ‘Invest to Grow’ strategy and was specifically related to an increase in general and administrative, sales and marketing expenses, and product research and development costs, primarily as a result of higher salaries expense from additional new hires.
Adjusted EBITDA was ($6.4) million for the fiscal second quarter compared to ($1.5) million in the prior year quarter. The decline in Adjusted EBITDA in the quarter was primarily attributable to the investments made to grow the business which resulted in an increase in general and administrative and selling and marketing expenses including higher salaries from additional team members.
At quarter end, Blackline had cash and short-term investments of $30.0 million and no debt. The Company’s cash position enabled it to invest in its manufacturing infrastructure and support the working capital required to maintain flexibility in the face of ongoing challenges in the global supply chain. During the quarter, the Company closed on the acquisition of Swift Labs, the consideration for which included $3.2 million in cash. Blackline also invested an additional $1.3 million during the quarter to expand the rental fleet to 1,500 units at the end of the quarter as the Company secures a greater volume of short-term projects.
