Blackline Safety Corp. ("Blackline" or the "Company"), a global leader in connected safety technology, reported record fiscal first quarter financial results for the period ended January 31, 2023.
Management Commentary
“Our strong Q1 growth of 34% represented our 24th consecutive quarter of strong year-over-year revenue growth, which was driven by increases in both our service and product segments increasing 39% and 29%, respectively. Our results in Q1 also displayed impressive progress and advancement of our cost reduction goals,” said Cody Slater, CEO and Chair of Blackline Safety. “Through our revenue growth and sales mix, we were able to deliver improved gross margins of 49% during the quarter, which marks our highest level since the second quarter of 2021. Looking forward, we see continued strong customer demand driving revenue growth coupled with our disciplined cost management approach enabling Blackline to achieve and sustain positive Adjusted EBITDA as we exit fiscal 2023.”
“In addition, our annual recurring revenue(1) advanced 34% year-over-year to $39.7 million. Regionally, we experienced year-over-year growth across the board highlighted by the United States increasing 36% benefiting from a robust pipeline, while Canada generated 69% growth.”
“On the margin front, we experienced the strongest service margins in Company history of 73%. Our product margins also improved significantly year-over-year from 10% to 21%, but declined when compared to Q4 FY 2022 due to lower volume, decreased percentage of sales generated through our leasing program, and foreign exchange impact. Looking forward, we anticipate margin improvements through the remainder of the fiscal year through the recent price increases and component costs reductions and efficiencies.”
"We made initial deliveries of our latest transformative product during Q1, the G6, and we anticipate demand and adoption to grow throughout the balance of this fiscal year while revenue is expected to be back-half weighted in fiscal 2023. We continue to see significant potential for G6 to disrupt and capture share in the $220 million annual zero-maintenance gas detection market.”
“We ended the first quarter in a solid financial position with total cash and short-term investments on hand of $23.5 million, while our cash burn rate improved for the third consecutive quarter. Furthermore, we continue to work towards finalizing a financial structure for the hardware equivalent element of our finance lease portfolio, which had a total undiscounted value of $35.5 million at the end of the quarter for the right to use the hardware and associated services. Importantly, this will supplement our liquidity position as we execute on our path to sustained profitability as we exit fiscal 2023.”
Fiscal First Quarter 2023 and Recent Financial and Operational Highlights
- Total revenue of $21.0 million, a 34% increase over the prior year’s Q1
- Service revenue of $11.6 million, a 39% increase over the prior year’s Q1
- Product revenue of $9.4 million, a 29% increase over the prior year’s Q1
- Canadian market momentum remains strong with 69% growth over prior year’s Q1
- United States regaining momentum with 36% growth over prior year’s Q1
- Annual recurring revenue(1) growth of 34% year-over-year to $39.7 million
- Rental revenue growth of 305% year-over-year
- Total operating expenses of $18.2 million, declining $2.1 million sequentially
- Released third annual Environment, Social & Governance (“ESG”) Report continuing our commitment to diversity, inclusion, environmental sustainability and community engagement
- Launched our first European Union (“EU") based service centre in France to serve the growing number of customers in Europe and provide an operational base to expand the Company’s rental offering in the region
- Announced a multi-year contract with a $1 million lifetime value in the Middle East, Blackline’s largest ever order in its Rest of World region
(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 first quarter revenue was $21.0 million, an increase of 34% from $15.7 million in the prior year quarter. Total revenue for each geographical market increased with Europe up 10%, Rest of World up 16%, United States up 36% and Canada up 69% representing the largest geographic growth region year-over-year.
Service revenue during the fiscal first quarter was $11.6 million, an increase of 39% compared to $8.3 million in the prior year quarter. Software services revenue increased 31% to $10.6 million and rental revenue increased 305% to $1.0 million. Software services growth was attributable to new activations of devices sold over the past 12 months as well as net growth within our existing customer base of $1.2 million. Rental revenue growth continues to be strong, up over 305% year-over-year, as our dedicated rental team continues to meet heightened demand for its connected solutions in the industrial construction, turnaround and maintenance markets.
Product revenue during the fiscal first quarter was $9.4 million, a 29% increase compared to the prior year quarter of $7.3 million. The increase in the current year period reflects the Company’s expanded sales network and investment in our global sales team over the past twelve months with continued strong demand generation and sales development activities.
Overall gross margin percentage for the fiscal first quarter was 49%, an 8% increase compared to the prior year quarter. The increase in total gross margin percentage is due to a combination of a higher sales volume and an enhanced pricing strategy. Product revenue comprised 45% of total revenue in the first quarter, a decrease of 2% from the prior year quarter, while service revenue made up 55% of total revenue for the quarter, representing a 2% increase. Service gross margin percentage increased to 73% compared to the prior year quarter at 68% as service revenue continued to grow, absorbing more fixed cost of sales.
Product gross margin percentage increased to 21% from 10% in the prior year quarter as the Company has been able to mitigate some of the global supply chain challenges that it has experienced since the third quarter of 2021. During the quarter the Company began completing some sales under our newly introduced pricing structure. The Company has been able to automate more of its manufacturing line, improving the efficiency and throughput of its operations.
Net loss was $7.7 million, in the fiscal first quarter, compared to $12.9 million in the prior year quarter. Net loss decreased primarily due to decreases in sales and marketing expenses and an increase in gross margin, offset by increases in general and administrative expenses and product research and development costs.
Adjusted EBITDA(1) was ($6.2) million for the fiscal first quarter compared to ($11.1) million in the prior year quarter. The increase in Adjusted EBITDA is primarily due to the decrease in net loss.
At quarter end, Blackline had total cash and short-term investments on hand of $23.5 million and $7.0 million of availability on its senior secured operating facility. The decrease in cash and short-term investments is mainly due to operating losses. At quarter end, the Company had $8.0 million of borrowings on its senior secured operating facility, repaying $0.6 million during the quarter from operating cash flow.
Blackline’s Interim Condensed Consolidated Financial Statements and Management’s Discussion and Analysis on Financial Condition and Results of Operations for the three months ended January 31, 2023 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 Thursday, March 16, 2023. 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/12481. 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 9921.
