Blackline Safety Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 14, 2023

There are 10 speakers on the call.

Operator

You for standing by. This is the conference operator. Welcome to the BlackLine Safety Corp. 2nd Quarter 2023 Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded.

Operator

After the presentation, There will be an opportunity for analysts to ask questions. I would now like to turn the conference over to Scott Boston, Vice President of Finance. Please go ahead.

Speaker 1

Welcome and thank you for joining us. Today, we will be discussing our fiscal results for the Q2 ended April 30, 2023, which were issued before market opening this morning. With me today is Cody Slater, CEO and Chair of BlackLine Safety Corp. As well as our CFO, Shane Grennan. I'll turn the call over to Cody in just a moment for an overview of our Q2.

Speaker 1

Following that, Shane will discuss the financial highlights of the quarter in greater detail, And Cody will then close with our outlook and some additional commentary before we take questions. I'd like to remind everyone that this call is live and is being recorded today, Wednesday, June 14, 2023. An archive of the webcast will be made available on the Investors section of our website. I'd like to note that some of the information discussed in this call is based on information as of today and contains forward looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements.

Speaker 1

For a discussion of these risks and uncertainties, Please review the forward looking statement disclosure in the earnings news release as well as in the company's SEDAR filings. During this call, there will be a discussion of IFRS results, non GAAP financial measures, non GAAP ratios and supplementary financial measures. A reconciliation between IFRS results and non GAAP financial measures is available on the company's earnings news release and MD and A, both of which can be found on our website, blacklinesafety.com and on SEDAR. All dollar amounts are reported in Canadian dollars unless otherwise noted. With that, I will now hand the call over to Mr.

Speaker 1

Slater.

Speaker 2

Thank you, Scott. Good morning, everyone, and welcome to BlackLine Safety's Q2 2023 conference call. Q2 continued our strong momentum from the last several quarters With another new record for total revenue of $24,100,000 which was up 45% year over year. This is our 25th consecutive quarter of year over year revenue growth. The rate of revenue growth also accelerated when compared to the Q1 of 2023 with service and product revenues up 46% and 43% respectively.

Speaker 2

We were able to achieve this while maintaining our reduced cost structure as we on our path to positive quarterly adjusted EBITDA by the end of this fiscal year. Q2 also set a record for gross margin at 12 point 5,000,000 with an overall gross margin percentage of 52% driven by our highest ever service margin of 75% which validates the opportunity for our business model to generate free cash flow in the near term. At the end of the quarter, our annual recurring revenue had increased 38 percent year over year to 42,400,000 demonstrating the longer term opportunity for BlackLine as we scale our Connected Worker solution And our market share through customer adoption of our world class products and services across a variety of industrial verticals. We are seeing this growing success across all our regions and we saw year over year revenue growth across the board With our largest segment, the United States leading the way at 65%, including our recently announced win in Texas, the competitive bid for portable gas detection to protect 1,000 workers. Canada and Europe also remained strong with 24% 17% revenue growth respectively.

Speaker 2

I want to specifically highlight the rest of world which increased 123%, achieving a new high watermark with nearly 2,000,000 in quarterly revenue. This team now under the leadership of our new Vice President, International Sales, Peter Italo is primed Continued driving the growth of BlackLine in key international segments and increased the pipeline of deals from leading international energy, manufacturing, transportation and chemical companies. Within our service segment, we saw another quarter of extremely strong results Our rental team generating 1,600,000 in revenue, a 2 47% increase year over year. This rental offering not only provides incremental high margin revenue from the industrial turnaround and construction markets, But it also enables companies who are not yet customers to experience the advantages of the BlackLine solution at their facilities and is a strong leading indicator for future sales. We'd also like to highlight our net dollar retention, which surpassed our earlier goal to 115% by the year end coming in at 118% in Q2, up from 102% last Q2.

Speaker 2

We are now targeting 120% for this metric by our fiscal year end as more customers renew their contracts with incremental service at a higher average revenue per unit. All of this contributed to reducing our adjusted EBITDA loss by 73% from $12,300,000 in Q2 of 2022 to $3,300,000 in the current quarter, normalizing for the effects of foreign exchange gains. This demonstrates how far we are down the path to our goal of achieving quarterly positive adjusted EBITDA by the end of fiscal 2023. We maintained our solid financial position at the end of the quarter with total cash and short term investments on hand of 21,000,000 including CAD 8,300,000 of funding received from the sale of the initial tranche of lease contracts under our new securitization agreement with CWB Maxim. With CAD15 1,000,000 and CAD35 1,000,000 in total availability, this facility provides us with the opportunity to more aggressively market Our all in monthly solutions which continue to be attractive to many customers including those for our newest product line the G6.

Speaker 2

As it relates to the G6, we've seen strong customer interest in the product and its roadmap. This has generated a robust pipeline with the majority of customers Looking for enhanced services on the roadmap that were not available at the launch of the product, but will be available in the Q4 of this fiscal year. While this will result in the delay of volume shipments anticipated in Q3, the G6 should be on track in Q4. I would note that the short term impact here is offset by the success we've had in the market penetration of our core Products and resulting growth in our ARR. In the longer term, the opportunity to monetize these higher value services for the G6 will create an even stronger product line for BlackLine and its customers.

Speaker 2

I will now turn the call over to our CFO, Shane Grennan to discuss our fiscal 2nd quarter results and financial position in more detail.

Speaker 3

Thank you, Cody, and good morning all. As Cody mentioned, we achieved our 25th consecutive quarter of year over year revenue growth of 45%, generating total revenue of $24,100,000 This includes $11,200,000 in product revenue, which increased 43% year over year. The increase in the current year reflects the investment in the company's expanded sales network and global sales team in the prior year with continued strong demand generation and sales development activities. Product gross margin percentage in the 2nd quarter doubles to 26% from 13% in the prior year period. Product margin also increased sequentially from the Q1 As we saw the benefits from our pricing increase, a higher proportion of sales being completed under our leasing model as well as increased throughput from our expanded production facility where we have enhanced capacity and process automation.

Speaker 3

Overall service revenue during the quarter increased 46% to $12,900,000 which is the strongest quarterly service growth achieved in 3 years. Software services were a major contributor to the growth Up 36% year over year, which also drove ARR growth of 38% to 42,400,000. Newly activated devices contributed to year over year growth of $1,500,000 in the quarter and net service increases within our existing customer base contributed $1,600,000 of the growth. Our rental business also continues to generate robust growth with revenue increasing 2 47% from the prior year to $1,600,000 meaning we have averaged over $1,000,000 in quarterly rental revenue over the past 4 quarters. Our service gross margin percentage came in at a record 75%, Achieving our target set at the beginning of the year, 2 quarters ahead of schedule.

Speaker 3

Similar to product gross margins, we expect continued margin improvements Through fiscal 2023, as we add new customers and renew existing customers under the new pricing model, Our total gross margin percentage came in at 52%, yielding €12,500,000 representing our highest ever total gross margin. The growth in total gross margin is due to revenue mix, cost optimization efforts across our business and the rollout of our pricing increase. In terms of our geographic growth mix, we are pleased with our performance as each one of our key geographic markets improved from the year ago comparable period. Our rest of world markets represented our largest growth region, improving 123% from last year's Q2, As our sales team continues to deliver on the investments made over the past 2 years. The U.

Speaker 3

S. Was our 2nd largest growth market at 65% from the year ago comparable period as we leverage our established sales network in the region. Additionally, Our Canadian and European markets were able to see a year over year increase of 24% 17%, respectively, as we continue to have excellent product wins and strong renewals across these regions. Shifting now to operating expenses. Our total expenses for the quarter were $19,200,000 which was down 11% compared to our expenses of $21,500,000 in the prior year quarter.

Speaker 3

Excluding non recurring transaction costs incurred in the quarter, total expenses as a percentage of revenue were 75% in the quarter compared to 127% in the prior year period and was our 4th consecutive quarter where we reduced our total expenses as a percentage of revenue. Product research and development costs decreased 20% from the prior year quarter to $5,100,000 and decreased as a percentage of revenue to 21% from 38% in the prior year period. Salaries, recruitment expenses and consulting and contractor costs associated with the G6 were all down with the core development work of that product having been completed. Sales and marketing expenses decreased 4% from the prior year quarter to $8,600,000 which represented 36% of revenue compared to 54% in the prior year period. Excluding a general provision for bad debts, sales and marketing expenses were 34% of revenue or an 8% decrease year over year.

Speaker 3

The decrease was a result of lower headcounts and contractor expenses compared to the prior year. I would like to underscore that even with this decrease, These go to market teams were key to driving revenue growth of 4% to 5% for the quarter. General and administrative expenses increased 9% from the prior year quarter to $6,800,000 which represented 28% of revenue compared to 37% in the prior year. Excluding non recurring transaction costs for our lease securitization facility and costs related to the departure of our Chief Technology Officer, G and A was down 9% year over year and was 24% of revenue. This decrease was a result of reduced professional fees and subscription and license costs resulting from our cost reduction initiatives over the past year.

Speaker 3

Moving on to capital expenditures, these totaled $2,800,000 for the quarter, primarily for additions of revenue generating sensor cartridges Being used by customers and rental equipment to support the continued growth of that service life. Inventory totaled $18,000,000 at quarter end compared to $18,700,000 at the end of the 4th quarter. Recall that we have built up our inventory during fiscal 2022 for G6, G7 and G7 Exo Due to global supply chain challenges and have begun reducing inventory levels in the current quarter as we fulfill our pipeline of orders and optimize our fulfillment strategy. Ultimately, this will allow us to improve our inventory turnover in the coming quarters, making it a source of cash for us over the balance of fiscal 2023. Our G7 lease program has a total of $39,200,000 in future contracted cash flows at April 30, 2023, up from $36,000,000 at October 31, 2022.

Speaker 3

During the quarter, we closed our lease securitization facility with CWB Maxim and received initial funding of $8,300,000 from the sale of the initial tranche of lease contracts. We will receive cash from our strong Q2 lease sales in our 3rd fiscal quarter with future funds being received approximately 1 month following the lease sale. With a CAD15 1,000,000 Canadian facility and a CAD35 1,000,000 USD facility, we have plenty of capacity to grow our leasing program, which can potentially become the core of our go to market strategy, driving stronger margins and even better customer retention, while lowering our overall cost of capital. We are pleased to have a financial partner like CWB Maxim, who is committed to the success of Canadian companies looking to grow beyond their home market. At quarter end, we had total cash and short term investments on hand of $21,900,000 $8,000,000 On availability under the lease securitization facility with CWB Maxim, the lease securitization facility will create a step change in our cash burn, which combined with our improving gross margins and cost discipline ensures the company has the cash it requires to execute on our path to quarterly positive adjusted EBITDA.

Speaker 3

I will hand it back to Cody to discuss our outlook and to provide closing remarks. Cody?

Speaker 2

Thank you, Shane. In closing, we are reiterating our goal to achieve positive quarterly adjusted EBITDA By the end of this fiscal year and remain firm in our belief that our high margin recurring service revenue is key to delivering long term profitability. We're strengthening margins, corporate wide cost discipline, dollars 42,000,000 in ARR, dollars 118 percent net dollar retention And increasing market adoption of our products by companies around the globe, we are well on our way to being a significantly profitable company. I want to thank our customers for their continued trust in BlackLine to help protect their most important and irreplaceable assets, their people. I also want to thank BlackLine's own people around the world for their hard work, creativity and their commitment to our purpose To ensure that every worker has the confidence to get the job done and return home safe, as we pursue our vision to transform enterprise workplaces to Connected Safety Technology.

Speaker 2

Thank you for your attention this morning. I'll now turn it over to the operator for questions.

Operator

Thank you. We will now begin the analyst question and answer session. The first question comes from Doug Taylor with Canaccord Genuity. Please go ahead.

Speaker 4

Hi, thanks. Good morning and congrats on a great growth performance this quarter. Let me start by asking about the securitization facility that you announced sort of towards The end of this quarter. We can certainly see the impact it's having on the balance sheet in the near term. Is it too soon to say where How or see the impact it's having on the sales velocity and your ability to secure new Leased Business, is that still on the come here?

Speaker 2

Yes, that's still on the go now. That's still on Something you see in the future that we've now that we've got securitization in place, we're shifting some of our marketing, some more making that whole program more visible with sort of X dollars per month kind of approach to the whole package of device and software. So I think you'd see that ramp up over time.

Speaker 4

Okay. Let me switch gears and talk about In the G6 rollout, you mentioned you expect to be on track with prior targets By Q4, I mean, last quarter you updated your expectations for units to be shipped this fiscal year. I think the last number is 25,000

Speaker 1

to 30,000

Speaker 4

units. Are you providing any update to that number today? And can you talk about where you've shipped so far?

Speaker 2

I really just look at it Doug is saying it's similar number, but rolling over between Q4 and Q1 kind of thing. What we've really seen there is we tried to talk a bit about on the call is the G6 when it launched was launched is really within that Core safety element on the 0 maintenance side, but with a roadmap of a bunch of additional value add data that could be acquired that Would allow companies to see have better visibility, deeper depth of data on workforce, on-site aspects. What we've really seen is that the customer base we're dealing with, a lot of whom know the G7, really want that extra value service and that's really rolling out Towards the end of our Q3 here beginning of Q4. So from my view and the company's view what I'd say is that the 6 is The market acceptance is exactly what we would have liked, even more so on some of the higher value base because some of those services we're talking about, The ones that get you closer to the kind of real time workflow that you see from a G7R additional Value adds and extremely high margin value adds for us.

Speaker 2

So no specific number for Q4, but if you again if you look at Q4 and Q1 similar numbers what we were talking about before.

Speaker 4

Okay. And so I mean the combination of still expected benefits from G6 Contributions to revenue in Q4, Q1, and the benefits of securitization on the revenue and income statement, your ability To sell that type of a pricing plan or model. And then with the pricing, I guess my Question is, I mean, should we be expecting even from the 45% growth that you delivered here in Q2 growth to inflect higher through the balance of the year and into next year.

Speaker 2

Keep in mind, our Q4 is always our strongest quarter. So if you're looking at it sequentially, you're going to see strong sequential growth for sure from Q2 to Q3 to Q3 to Q2 to Q4. And we're looking again at seeing very strong growth year over year in those Actual numbers as well too. We wouldn't say that, again, keep in mind Q4 always that top level quarter for us As far as the hardware numbers, particularly the service will just continue that strong growth you've seen. The ARR growth will continue along the same sort of a path, not have a big inflection in the quarter at the year end, but good

Operator

The next question comes from Martin Toner with ATB Capital Markets. Please go ahead.

Speaker 5

Thanks so much and congrats on

Speaker 6

a nice quarter, gentlemen. Quick question on the I just would be great if you guys could give us a little color on some of the supply issues that are delaying the ability to ship G6?

Speaker 2

It's not really supply issues. It's feature sets that we were We're part of our long term or mid term roadmap on the G6. So trying to say before when we launched the G6, It's competing in that 0 maintenance market space, which is purely a safety product. There's a problem, beats and flashes. The 6 has The connected value it has the ability to actually create a rescue, do all those kinds of things.

Speaker 2

But when we had a roadmap that was Given customers a greater depth of value around the data they could gather from the 6 itself. And what we're seeing is that customers Want to see that in place prior to doing the shift. That's a perceived to perceive the value that we thought they would on that space And really are willing to pay for that in the long run as well too. So Well, it's not really a supply chain element on the 6. We've got inventory.

Speaker 2

We're ready to start shipping on the 6 Right away we are, but it's more an element of delivering on that roadmap for some of the additional, call them software services that were tied in with the 6.

Speaker 6

Got you. Okay. Super. Thanks so much. Any issues with The availability coinciding with Q1, I mean, given that that's the slow sequential quarter, are you going to be able to get as much Proverbial bang for your buck as you would in other quarters?

Speaker 6

Or would you sort of temper our expectations there?

Speaker 2

Like if we're talking about just the 6 itself, then we're going to look for a strong quarter in Q1. Q1 always Has a drop off as an overall base. So I'd still assume you're going to see that, but from Q4 to Q1, But with a significant impact from the G6 in that relating to which will be in Q4 as well too.

Speaker 6

Great. NRR was particularly strong. Can you talk a little bit to some of the drivers of strengthening?

Speaker 2

On the ARR side?

Speaker 6

No, sorry. On

Speaker 2

The net dollar retention, it's a series of different elements. It's really the selling of additional services. We're seeing the team there that's responsible for Up valuing the different services the customers have, the beginning of impact of that pricing increase, Pricing change, it's a portion of all those kinds of elements. And again, it's that extreme The other point I'd make is that we're still seeing really 100% retention basically, like we just aren't we don't see losses of customer base, That net dollar retention was really strong pickup again based on additional service sale and Based on the beginning of seeing that 15% price increase start to flow through our service channels service renewals, I should say.

Operator

The next question comes from David Kwan with TD Securities. Please go ahead.

Speaker 7

Hey, guys. You guys have done a great job on reining in the cost here to try to get to positive EBITDA. I guess, Looking out, I guess at what point would you feel comfortable starting to ramp up some of these investments as it relates to growth, Sales and marketing, R and D and the like. So obviously you've got a big opportunity out there, especially I think on the G6 side, but even on the G7 side, there's lots of opportunity to And Trademore, obviously customer their competitor displacements and whatnot. But just trying to want to understand how you're looking at the business from that standpoint?

Speaker 2

The way we look at it is really that there's a lot of opportunity Like our focus in this year has been what we call into the black, the next year, a lot of our focus That is really on looking at optimization of some of our operations, services, etcetera. There's a lot of Opportunity to increase the scalability by investing in better systems for our Order entry systems, our payable systems, etcetera. So from the overall outside cost standpoints that will actually be able to drive those Costs down as a percentage of revenue long term because we'll have less we'll need less people to given the increased volume of work, We won't need to be adding people to do that. We'll be adding improvements to different technologies and services we're using internally. So We look at really still a very strong cost base focus going forward into the next year to allow us, but really focusing on investing and allowing us To be a more scalable company across those aspects, which will make us longer term more profitable.

Speaker 7

So would it be fair to say then, Cody, that I guess the gains that you might the financial gains that you would get from this Cost optimization activity would be kind of reinvested in for growth such as kind of the cost line, the OpEx line should remain relatively flat?

Speaker 2

Yes, I mean, there'll be some growth in some aspects of it, but yes, for sure, compared to service excuse me, compared to revenue growth for sure, Much, much lower element on the cost base.

Speaker 7

Okay. That's good to know. And on the gross margin side, you made some good gains there. I know obviously you had some headwinds on the product side, particularly as it relates to the supply chain. And you're benefiting from the price increases and mix.

Speaker 7

I guess, where now do you think the margins could get to? You've hit your target for the year on the Services side, you've seen a nice sharp rebound on the product side. Like how should we be looking at that?

Speaker 2

If we look at on the product side, there's still supply chain is obviously more of a challenge always on Hardware than it is on the services side, still see the company trending into 35% to 40% by the year end here, Probably now a little bit more a little bit closer to that 35% than the 40% we've said before.

Speaker 7

And how about on the services side, like you're at 75,000,000 that was kind of the target exiting the year, like could we see much more improvement beyond that?

Speaker 2

Yes, it's a big service is a big number there. You'll start but yes, you'll see a little bit of improvement, a percentage, a couple of percentage Points of improvement over the period of time. Again, they will have more customers flowing through onto the higher priced newer plans And the new customers come in at that higher price as well too, which sort of helps drive that margin up a little bit.

Speaker 7

That's helpful. Last question. Can you talk to me what you guys are doing on the generative AI front, I guess, particularly as it relates to BlackLine Analytics, I know I think that's been a key differentiator for you guys. And also, You've had a massive data advantage versus your peers given that the T7 has been on the market for many years longer than some of them that at least have a comparable product on the market. But do you think also Gen AI could help narrow that data gap?

Speaker 2

I'd say what we're doing on that right now is more exploratory work and not just in the Data science side, but in some of the other aspects of the design development, customer support, Those kinds of things. So it's definitely going to be something that will have a long term impact for us. And you're right, the only value The only way that becomes valuable is if you have the data to actually get those insights out of and we are the only company out there that has that scale of that kind But right now, I'd describe the work we're doing is exploratory.

Speaker 7

I appreciate the color. Thanks.

Speaker 2

Thanks.

Operator

The next question comes from John Zhao with National Bank. Please go ahead.

Speaker 8

Hey, good morning guys. Thanks for taking my questions. So it looks like the price increase has Then fully rolled out among your customers. So could you share with us any customer feedback so far? And do you see any pushbacks or contract losses for that reason?

Speaker 2

No pushbacks. I wouldn't say so. It's on my up and I'm seeing.

Speaker 8

Okay. And it seems like the rental revenue has become a meaningful contributor of your total service revenue. So my question is, How should we think about the margin profile of that business? You mentioned it's high margin, but is this comparable to the rest of the service business?

Speaker 3

Good morning, John. Yes, in general, maybe a touch lower given some of the other activities that are involved in the rental business, but A point between what the product margin is at and the service margin is at would be a good benchmark there in terms of the rental revenues.

Speaker 8

Thank you. I guess, a related question on that topic is, so how much operating leverage Does the rental business have what they continue to grow was to from $1,600,000 to potential of $3,000,000 $5,000,000 in the future? Do you think that there's a potential that gross margin is going to fully scale?

Speaker 3

Within that base, yes, I guess for sure, Sean, as that business grows and there's less inputs needed in terms of building that business, that would be the expectation for sure.

Speaker 8

Okay. Thank you. My last question is, I just wanted to dig into the international market, especially the Middle East area. So what kind of market dynamics Does that region have and in terms of your presence in that market, so what does BlackLine Safety do to tap into the market potential in that region?

Speaker 2

Sure. That's an interesting question. We really started investing in there more than a little over 2 years ago. The Middle Eastern market is an excellent market for us. We're really just starting to see the traction And now it's one where you need to have the feet on the ground, the people who know the marketplace, we do that very well.

Speaker 2

It's a long term relationship. It's a bit longer term introductions basis in that market, like customers want to get to Customers are large and they want to understand their suppliers well and the so it's a bit longer of a ramp up into some of the aspects There, but that's what we're starting to see that inflection point now in that market space where you're going to see a strong pickup over the next Over the fiscal next 4 quarters, shall we say, as we start penetrating that market more. There's also Lots of different things you could talk about as far as different regulations, different other approvals you need for that market. We've got all that in place now and now it's really a matter of Yes, starting to see the traction we can generate there.

Speaker 8

Thank you. I'll pass the line.

Operator

The next question comes from Jason Sandberg with PI Financial. Please go ahead.

Speaker 5

Hey, guys. Thanks for taking my questions. I just wanted to To drill down a little bit more on the rental side, you'd mentioned that you'd invested in your rental equipment in your CapEx this quarter. Just want to sort of get if you could share sort of what you expect to invest And that's

Speaker 3

rental fleets for the remainder of the

Speaker 5

year and sort of what's your expectation in terms of where this business can Peak either this year or next year near term?

Speaker 2

Yes, I mean, over the next 6 months we're looking at putting another about $500,000 in capital into the rental pool To allow for the growth in the rental space, we tend to rent the rental team does a superb job of their utilization that tends to run-in the high 80s. So growth requires more investment in hardware into the space. Look at it over the next couple of quarters as being about a 0.5 $1,000,000 of investment

Speaker 5

there. Okay. So that's helpful. And then you also mentioned that A lot of your customers or your rental fleets, one of the side benefits of that is those rental contracts I'm converting to sales. Just wondering if you have any metrics to that in terms of What how many customers actually do go into the long term sales agreement after they do a rental rate?

Speaker 2

We have no direct metrics you can share with us, Keeson. But I'd say, it's Introduced us to a number of new logos, like it's added logos to our customer base in To a reasonably significant degree, but we don't actually have a specific number that we've tracked that says this is the relation Ship one to the other. Like I said, the biggest thing for us is getting into a customer, what I would say is off cycle. So if you've got a customer who Is normally buying their gas detection every 4, 5 years and it's maybe 2, 3 years out, but they're doing a turnaround or a construction opportunity. You get in there with our product that gives them an opportunity to see what we can do, the value of the connected services and it It is a significant opportunity to lead the sales.

Speaker 2

But again, I'd just say the point I'd make is it Has actually already added new logos to the customer base here.

Speaker 5

Okay, great. Thanks very much.

Operator

The next question comes from Raj Sharma with B. Riley. Please go ahead.

Speaker 9

Thank you for taking my questions and congratulations on solid results. Can you please remind me, refresh the G6 delay in Q3 is only related to feature sets, not Any supply chain issues

Speaker 2

or? Yes, that's correct. It's just really it's been customers looking at the product asking for Once they see something connected now, given what we've done with the 7, they know themselves what other values they like. Fortunately, everything they've been asking something that's been on our roadmap. No, it's something we've been anticipating, but delivering in that Q4 period.

Speaker 2

So Once we're over that development hump there, then there'll be no restriction on our shipping products.

Speaker 8

Got it. Thank you.

Speaker 9

And then the lease contracts, are they are about So the rental income is the lease contracts and that's about a little over 12%, 13% of product sales every quarter?

Speaker 3

I would just say that there is 2 distinct business activities happening there, Raj. The rental are under discrete Rental agreements with various organizations and the lease agreements themselves are the product associated revenue is captured within our product revenues.

Speaker 2

And typically the number is a percent. Sorry, would you just add that the percentage of our sales tend to be in lease Right around the 25% to I'd say 25% to 30%.

Speaker 5

Oh, great.

Speaker 7

For the

Speaker 2

hardware segment.

Speaker 9

Of product Revenues? Correct.

Speaker 2

Yes, correct.

Speaker 9

And do you see that percentage going up in the next few months, in the next 12 months?

Speaker 2

In the next 12 months, yes, yes. Next few months, no. I don't think we'll like it won't be like turning on a switch, but It's a nice way from company standpoint, it's a nice system. It's a $50 a month. It's simple.

Speaker 2

It's clean. It includes everything. From our standpoint in the past, it was just a very negative impact on cash flow. With the securitization with CWB Maxim, now it's almost the opposite. The payment terms are pretty Quick and direct and so it's an easier thing for us to press a little bit more and we do believe the market is very receptive to that So a higher percentage down to long term if companies will likely take advantage of that.

Speaker 9

Got it. So I just wanted to, I guess, get an understanding of over the next 12 months, The percentage of product that would be leased and also what the securitization cash flow could you expect?

Speaker 2

You know what, it's still we're looking at, as I said, I think we can I think we can do better than the 25% we've been doing, but it is a it's a number we don't drive, it's a number the customer does at the end of the day, but dependent on markets, but dependent on Other things, given one thing we'll say with the CWB line is that the line has capacity to handle what we're looking at doing for leasing for the next Couple of years?

Speaker 8

Right. The total

Speaker 9

$50,000,000 about $15,000,000 plus $35,000,000 Yes. Right. And then lastly, just excuse me, could you comment on the CapEx? Was it a CapEx requirement Or any CapEx spent on the new capacity expansion at your headquarters?

Speaker 3

No, Raj, there hasn't been extensive expenditures incurred in relation to that. We captured most of that In the Q4 of last year, there will be a small element that you'll see coming forward into the 3rd quarter, But you're not going to see extensive spending happening in the Q3 for that.

Speaker 9

Right. And do you think that, that takes care of the capacity expansion takes care of the growth for the next few years At this pace?

Speaker 2

I wouldn't necessarily say, it's something we'll always be looking at investing in. That certainly takes us gives us the capacity to do what we'd like to be doing for the next year or so. Depending on how The growth is looking at, we'll look at that on an ongoing basis as to when do we invest more into that.

Speaker 9

Got it. Yes, that's all for me. Thank you so much for answering my questions.

Speaker 2

Thanks, Rob. Congratulations again. Thank you. Thanks.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Cody Slater for any closing remarks. Please go ahead.

Speaker 2

Just want to thank you all for attending the call, and we wish you a good rest of the day. Thank you very much.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant

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Key Takeaways

  • Total revenue reached CA$24.1 M, up 45% year over year, marking the 25th consecutive quarter of growth with product up 43% and service up 46%.
  • Record gross margins achieved 52% overall with a service margin of 75%, underscoring improved pricing, cost optimization, and free cash flow potential.
  • Annual recurring revenue (ARR) rose 38% to CA$42.4 M while net dollar retention climbed to 118%, highlighting strong customer adoption and upsell momentum.
  • Adjusted EBITDA loss narrowed by 73% to CA$3.3 M, as operating expenses fell 11% year over year, accelerating the path to quarterly positive EBITDA by fiscal year end.
  • Shipments of the new G6 device are pushed into Q4 to incorporate additional roadmap services requested by customers, although core product performance continues to drive ARR growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Blackline Safety Q2 2023
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