Blackline Safety Corp. ("Blackline" or the "Company"), a global leader in connected safety technology, today reported record fiscal third quarter financial results for the period ended July 31, 2022.
Management Commentary
“Our Q3 results reflect our continued success in driving strong revenue growth of 46% to $18.6 million amidst a still challenging operating environment that includes inflationary cost increases and longer cycle times as global supply chain challenges remain,” said Cody Slater, CEO and Chair of Blackline Safety. “Revenue growth was primarily driven by another robust quarter of product growth at 69% and service growth accelerated to 30%, our highest quarterly growth of the last two years, as we delivered on numerous deployments during the quarter and our rental business continues to ramp. This service growth demonstrates the attractiveness of our hardware-enabled software-as-a-service business model as our growing customer base deploys more of our devices that utilize our high-margin services. This led to Blackline exiting the quarter with annual recurring revenue of $32.9 million(1)
“We are also encouraged with our margin performance in Q3 as service margins maintained their strong levels at 70% and hardware margins improved sequentially from 13% to 17% as we continue to proactively seek ways to mitigate elevated component costs and shipping charges. It is important to note that these margins do not reflect any benefit from the approximate 15% pricing increase being implemented in Q4 on both hardware and services. We expect to realize a step-change improvement in our hardware margins in the near-term with the pricing increase, while our service margins should see a steady uplift over the coming quarters as we add new customers and renew existing customers on the new pricing model. Our differentiated product and service offerings along with our net dollar retention (1) of 103% in Q3 give us confidence that the pricing increase will not impact our competitive positioning.”
“In terms of our operating costs, we remain confident in our ability to achieve our goal of Q4 operating costs at or below Q2 levels of $21.5 million. Operating costs in Q3 remained elevated, as we incurred total one-time restructuring costs of $1.4 million, including severance and redundancy costs of $0.5 million, associated with our previously announced cost reduction initiatives. While a portion of our operating costs are correlated to revenue and may increase on an absolute basis, we expect Q3 operating costs to be the high-water mark for Blackline as a percentage of sales as we expect to generate improved operating leverage going forward.”
“We remain on track to release our G6 product in October to capture the $240 million annual zero-maintenance gas detection market. Early feedback remains positive with high levels of interest, and we look forward to building on this momentum with the launch of the G6 at the NSC Safety Congress & Expo, North America’s largest event for workplace safety, next week.”
“Lastly, to help bolster our liquidity position amidst an uncertain macro environment, we successfully raised nearly $25 million in gross proceeds through a bought deal financing and concurrent private placement and signed a non-binding term sheet for a new $15 million senior secured operating facility in August. This influx of capital, along with our pricing increases and cost reductions, put us in a strong position to execute on our plans to couple continued robust top-line growth with improved line-of-sight to sustained profitability.”
Fiscal Third Quarter 2022 and Recent Financial and Operational Highlights
- Total revenue of $18.6 million, a 46% increase over the prior year’s Q3
- Service revenue of $9.7 million, a 30% increase over the prior year’s Q3
- Product revenue of $8.9 million, a 69% increase from the prior year’s Q3
- Continued strong growth of 75% in the U.S. market compared to the prior year’s Q3
- Momentum remains in Canada with 68% growth compared to prior year’s Q3
- 64% revenue growth in Rest of World market compared to the prior year’s Q3
- Europe’s revenue had a decline of 6% compared to the prior year’s Q3 as the region underwent its realignment and leadership transition
- Annual recurring revenue(1)growth of 21% year-over-year to $32.9 million
- Implementing approximate 15% pricing increase in hardware and services in Q4
- Generated total gross proceeds of $24.9 million in a bought deal financing and concurrent private placement, closed on August 31, 2022
- Signed non-binding term sheet with ATB Financial for new $15 million senior secured operating facility with a $5 million accordion feature
- Signed three North American energy deals with combined lifetime value of over $10 million, including an almost $7 million deal with a Texas-based oil and gas company
- Selected by Severn Trent, the UK’s second biggest water company, for a $2 million connected safety program with potential total value up to $4.2 million
(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 third quarter revenue was $18.6 million, an increase of 46% from $12.7 million in the prior year quarter, with Canada up 68%, Rest of World up 64% and U.S. revenues up 75% being the largest geographic growth regions quarter-over-quarter. The increases in each region were assisted by the recovery of the energy sector.
Service revenue during the fiscal third quarter was $9.7 million, an increase of 30% compared to $7.4 million in the prior year quarter. Software services revenue increased 26% to $8.3 million, operating lease revenue decreased 27% to $0.6 million and rental revenue increased 730% to $0.8 million. Retention rates of our existing customers across geographic regions and industry sectors remained robust with net dollar retention of 103% for the quarter. Rental revenue growth continues to be strong as a result of the demand for the Company’s complete suite of connected solutions in the industrial turnaround and maintenance market.
Product revenue during the fiscal third quarter was $8.9 million, an increase of 69% compared to $5.3 million in the prior year quarter, which reflects the prior investment in the Company’s expanded sales network and global sales team with continued strong demand generation and sales development activities.
Overall gross margin percentage for the fiscal third quarter was 45%, a 1% decrease compared to the prior year quarter driven by a heavier product versus service mix. The decrease in total gross margin percentage is due to the sales mix with product revenue comprising 48% of total revenue in the third quarter of 2022 compared to 42% in the third quarter of 2021. Service gross margin percentage remained consistent at 70% compared to the prior year quarter as service revenue continued to grow, offsetting an increased cost base.
Product gross margin percentage increased to 17% from 13% in the prior year quarter and the fiscal second quarter of 2022 as the Company has been able to mitigate some of the global supply chain challenges that it is has experienced since the third quarter of 2021. Higher sales volumes also contributed to lower unabsorbed overhead costs during the current period. The increase was offset by write-offs of $0.7 million which reduced Product gross margin by 8%.
Net loss and EBITDA were $16.3 million and ($14.6) million, respectively, in the fiscal third quarter, compared to net loss and EBITDA of $10.3 million and ($8.9) million in the prior year quarter. The increased net loss in the periods is due primarily to increases in general and administrative expenses, sales and marketing expenses and product research and development costs, offset by an increase in gross margin. The decrease in EBITDA is primarily due to increases in total expenses and other non-recurring transactions in the third quarter, offset by increased gross margin compared to the prior year comparable period.
Adjusted EBITDA was ($5.7) million for the fiscal third quarter compared to ($4.5) million in the prior year quarter. The decrease in Adjusted EBITDA is a result of increases in general and administrative expenses and sales and marketing expenses, offset by increased gross margin compared to the prior year comparable periods.
At quarter end, Blackline had total cash on hand of $10.5 million and no debt. The decrease in cash and short-term investments is mainly due to increased operating expenses and the Company’s investment in the G6 product line launching during the fourth quarter of the year. Blackline has invested $1.6 million in this fiscal year to grow the rental fleet as we have expanded our share of the industrial turnaround market. Subsequent to the end of the period, the company closed a bought deal financing and concurrent private placement, raising gross proceeds of $24.9 million.
Blackline’s Interim Condensed Consolidated Financial Statements and Management’s Discussion and Analysis on Financial Condition and Results of Operations for the three and nine-months ended July 31, 2022 are available on SEDAR under the Company’s profile at www.sedar.com. All results are reported in Canadian dollars.
Conference Call
A conference call and live webcast have been scheduled for 11:00 am ET on Wednesday, September 14, 2022. Participants should dial 1-800-319-4610 or +1-416-915-3239 at least 10 minutes prior to the conference time. A live webcast will also be available at https://www.gowebcasting.com/12014. Participants should join the webcast at least 10 minutes prior to the conference time to register and install any necessary software. If you cannot make the call live, a replay will be available within 24 hours by dialing in to dialing 1-800-319-6413 and entering access code 9294.
