Blackline Safety Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 18, 2024

There are 11 speakers on the call.

Operator

You for standing by. This is the conference operator. Welcome to the BlackLine Safety Corp. 4th 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 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 4th quarter and year ended October 31, 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 Brennan. I will turn the call over to Cody in just a moment for an overview of our Q4. Following that, Shane will discuss the financial highlights of the quarter in greater detail.

Speaker 1

Corey will close with our outlook and some additional commentary before we take questions. I'd like to remind everyone that An archive of this webcast will be made available on the Investors section of our website. I would 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. For a discussion of these risks and uncertainties, Please review the forward looking statements disclosure in the earnings news release as well as the company's SEDAR plus filings.

Speaker 1

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 SEDARplus. All dollar amounts are reported in Canadian dollars unless otherwise noted. With that, I will hand the call over to Mr. Slater.

Speaker 2

Thank you, Scott. Good morning, everyone, and welcome to BlackLine Safety's 4th quarter 2023 conference call. I'm pleased to share today, Lastline's fiscal 4th quarter results, our 27th consecutive quarter of year over year revenue growth and the milestone achievement of $100,000,000 in revenue for the fiscal year. Our $30,000,000 in total revenue for the 4th quarter was also a record for the company and is a 36% increase over the prior year. We saw our annual recurring revenue or ARR surpass $51,000,000 up 40% year over year, driven by new hardware sales as well as our industry leading net dollar retention of 129%.

Speaker 2

We continue to achieve greater scale with our service revenue, which grew 38% overall to $15,000,000 for the quarter. And with more customers adopting more value added services, Our service margin hit a new high of 77%, generating $11,600,000 of gross profit. Our hardware segment generated a record $4,900,000 of gross profit, up 66% year over year, driven by increased sales And margins of 32%, our highest in 3 years. Improvements in our pricing, supply chain management and manufacturing automation will continue to push our margins And unlock even greater profitability. With our improving margins, growing ARR As a step change decrease in cash burn, we exited the quarter in the strongest financial position ever with total liquidity of $29,200,000 in our cash, short term investments and operating facility and the $50,000,000 available on our lease securitization facility.

Speaker 2

5 quarters ago, we set out to work towards turning BlackLine into a profitable business. I'd like to highlight the dramatic progress we have made since that time. In that quarter, our EBITDA loss represented 78 percent of our $18,600,000 of total revenue and our cash used in operation activities was 105%. Today, we reported an EBITDA loss of less than 5% of our total revenue, an improvement of 82%, With cash used in operating activities dropping to just 7%, an improvement of 90%, all while achieving revenue growth of 36%, finishing with a record $30,000,000 in the quarter. Though we did not hit our ambitious goal of reaching positive EBITDA, Yes.

Speaker 2

It is clear BlackLine has been transformed into an engine that can continue to deliver strong top line growth with significant profitability in the long run. I will now turn the call over to our CFO, Shane Brennan, to discuss our fiscal 4th quarter results and financial position in more detail. Thank you, Cody, and

Speaker 3

good morning all. As Cody mentioned, we achieved our 27th consecutive quarter of year over year revenue growth of 36%, generating total revenue of $30,000,000 This includes $15,000,000 in product revenue, which increased 35% year over year. The increase in the current year reflects the efforts of BlackLine's strong global sales team, distribution network as well as continued targeted demand generation and sales development activities. Product gross margin of $4,900,000 improved 66% in the 4th quarter, thanks to the growth in revenue and an increase in gross margin percentage to 32% from 26% in the prior year period. Product margin increased every quarter during 2023 as we saw benefits from our increased scale, manufacturing automation, enhanced pricing and improved supply chain management.

Speaker 3

We expect to continue our incremental improvements to this gross margin level during fiscal 2024. Service revenue during the quarter increased 38% to $15,000,000 our 6th consecutive quarter with greater than 30% growth in this segment. Software services were a major contributor to this growth, up 36% year over year, which also drove ARR growth of 40 percent to $51,100,000 Newly activated devices contributed to year over year growth of $1,000,000 in the quarter and net service increases within our existing customer base contributed 2,500,000 This resulted in a net dollar retention of 129% as we continue to raise the bar on this key metric. Our pricing increase combined with customer device count expansions and the efforts of our client success team to increase the penetration of higher value services such as BlackLine Safety Operations Center, personnel monitoring, 2 way boys and Push to Talk all contributed to this impressive number. Our rental business also continues to generate robust growth, setting a new record of $1,800,000 in revenue in the seasonally strong 4th fiscal quarter, a 69% improvement over last year's quarter.

Speaker 3

We expect continued strong year on year growth in the rental business in fiscal 2024, With the rental team having expanded to cover Europe and the Middle East regions, where there is huge demand for our connected area and wearable monitors for 3 to 9 month projects. Our service gross margin percentage set a new benchmark 77%, generating over $11,600,000 of gross margin for the quarter. We believe this is a sustainable margin percentage throughout fiscal 2024 as we continue our penetration of value add data and communication services for our customers. Our total gross margin percentage came in at 55%, yielding $16,500,000 selling another quarterly record for total gross margin. The growth in total gross margin is due to revenue mix, cost optimization efforts across our business and our increased scale.

Speaker 3

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. The U. S. Market represented our largest growth region, Improving 89% from last year's Q4, other sales teams secured several major wins across the region. Our rest of world market also saw strong growth at 14% compared to the prior year quarter and is primed to provide significant growth in fiscal 2024.

Speaker 3

Additionally, our Canadian and European markets were able to see year over year increases of 12% and 1%, respectively, as we continue to have excellent product wins and customer loyalty across these regions. Shifting now to operating expenses. Our total expenses for the quarter were $19,800,000 which was down $500,000 or 3% compared to our expenses of $20,300,000 in the prior year quarter. Excluding impacts of foreign exchange, this was the 7th consecutive quarter where BlackLine has reduced its total expenses as a percentage of revenue. General and administrative expenses increased just 2% from the prior year quarter to $5,800,000 which represented 19% of revenue compared to 26% in the prior year.

Speaker 3

The slight increase was due to increase in salary costs, which was offset by lower consulting and professional service fees. Sales and marketing expenses increased 24% from the prior year quarter to $11,200,000 which represented 37% of revenue compared to 41% of the prior year's period. The increase was due to higher commissions resulting from higher hardware sales in the quarter and bad debt expense arising from a bad debt recovery in the prior year, which was not present in the current year. It is important to note that the 36% increase in annual for fiscal 2023 was achieved while keeping total annual sales and marketing expenses flat. Product research and development costs decreased 35% from the prior year quarter to $3,600,000 and decreased as a percentage of revenue to 12% from 25% to the prior year period.

Speaker 3

Salaries, consulting and contractor costs were all lower following the workforce reduction that occurred in the prior year. Our development teams remain focused on next generations of our core products and services. We look forward to the impact these innovations will make as these products begin to launch in late 2024. Moving on to capital expenditures. These totaled $1,900,000 for the quarter, primarily for additions of revenue generating sensor cartridges being used by customers and metal equipment to support the continued growth of that service line.

Speaker 3

Inventory totaled $17,100,000,000 at the quarter end compared to $18,700,000 at the end of the prior year, With inventory turnover improving significantly as our sales continue to grow, we see inventory continuing to be a source of cash for us over the next several quarters. Our lease program had a total of $39,600,000 in future contracted cash flows at October 31, 2023, up from $36,000,000 on October 31, 2022. During the quarter, we received proceeds from our lease securitization facility with CWB Maxim of $600,000 and made scheduled repayments of $1,500,000 The lease facility continued to be an important part of our cash management strategy and we will leverage this throughout 2024. At the end of the year, we had over CAD50 1,000,000 equivalent of availability on this facility. At quarter end, we had total cash and short term investments on hand of $16,000,000 with over $13,000,000 of availability on our 2 year senior secured operating facility with ATB Financial that was renewed and expanded to a maximum capacity of $25,000,000 in October.

Speaker 3

We remain confident that we have the resources required to execute our business strategy of achieving sustainable growth, innovation and disciplined cost management so that BlackLine can generate positive free cash flow in fiscal 2024. I will hand it back to Cody to discuss our outlook and to provide closing remarks. Cody? Thank you, Shane.

Speaker 2

In 2017, Blacklight introduced the industrial world to the idea of connected safety as we brought the G7 connected wearable to market. We believe that the market would adopt and pay for the added values from this innovative approach to protecting their people. Clearly, our customers agree with us. As at $100,000,000 of annual revenue, We are now one of the most significant players in the gas detection industry and by far the fastest growing. Over the last fiscal year, we not only bolstered our financial strength, we also realized numerous corporate achievements and milestones.

Speaker 2

To keep pace with increasing customer demand for our solutions, we doubled our manufacturing capacity, while maintaining the same physical footprint of our production facilities in Calgary, Canada. We secured numerous multiyear contracts with prominent global customers, including multimillion dollar deals In the Middle East and a $3,200,000 deal in the Permian Basin protecting over 1,000 workers with our connected devices. With continued expansion of our global reseller network, we now partner with over 2 60 distributors around the world. And our commitment to product innovation was yet again recognized by health and safety professionals as BlackLine Our 10th new product award from Occupational Health and Safety. As we look to fiscal 2024, we remain committed to a balanced approach of top and bottom line growth as well as product innovation.

Speaker 2

I see this driving us towards The gold standard for SaaS companies and exiting 2024 as a rule of 40 company, where the combination of our top line growth And EBITDA margin equal or exceed 40%. To put our progress towards this goal in perspective, A year ago, our Rule of 40 calculation was negative 37%. And this Q4 Saw the company reach positive 31%, clearly on the right path. I'm proud of the dramatically stronger company that we are today than we were 18 months ago when we first embarked on our path to profitability. We are well positioned to accelerate along this path while becoming the dominant player in the multibillion dollar gas detection and connected safety industry.

Speaker 2

The way forward is clear for us to drive growth in our top and bottom lines, generating significant shareholder value over the coming years as we continue to lead the way to a connected safety future. I want to thank the BlackLine team across the globe for their commitment For our purpose and for the incredible results they have collectively delivered. I speak for all BlackLine employees when I say that we are grateful to our customers For their continued trust in Blacklight to protect their people around the world. Thank you for your attention this morning. And I'll now turn it over to the operator for questions.

Operator

Thank The first question comes from John Zhao. Please go ahead.

Speaker 4

Hey, good morning and thanks for taking my question. First of all, Solid progress on the cost reduction front on a year over year basis. So my question is, when we benchmark This quarter's EBITDA loss to the breakeven expectation at the beginning of the year, what is the delta here? Is it because there were Some deals that were delayed in Q4 just because the OpEx is higher than expected.

Speaker 2

Hey, John, it's Cody here. I'd say the biggest delta would be a few larger deals that were expected to see in Q4 that were shifted out, Few of the cost reductions we were looking to even though we made great progress on our margin on moving our margin forward on our hardware, we were Looking for a few additional cost reductions to take place there that have been delayed due to supply quality issues that have pushed that out a little bit. But again, as you can point to the trend is all there, of course. The other thing being the FX impact When you looked at that adjusted number overall. So the core things would be just a little bit light on some of the hardware revenue side And a little light on the hardware margin from where we've anticipated to be.

Speaker 4

Okay. Got it. Maybe help us understand that the road map To the updated breakeven time line, which I suppose is going to be the second half of the year, so how much operating leverage do you think The business has given the current cost structure and incurred total OpEx.

Speaker 2

Well, I mean, again, you're right. We're talking the second half, as you know, I think as you're aware, it's on our sales cycle tends to be that we'll See a growth up to Q4 and then a drop in sales back in Q1, Q2, Q3 tends to be back where we were as far as again, we're talking solely hardware here. Service revenues just keep growing on a quarterly basis. You're going to see pretty stable cost controls across the board. There were some elevated costs in Q4 here for onetime elements from our The sales mix in our distribution, commissions, etcetera, that elevated that a little bit.

Speaker 2

You'll see that drop back down in Q1. All of that just provides the leverage going forward to see that strong EBITDA growth driven as well by Year over year, you'll see improvements in the hardware margin still, part of that's volume driven that, part of that some of Getting in some of the supplier changes that we're looking towards and small margin increases on the service side as well too, Also driven by really the price increases we put in place and seeing customers' contract cycle through those Renewals and renew at that higher price point. So slightly stronger margins, good product mix, good strong top line growth Then continued management of the cost control will describe that in that second half.

Speaker 4

Okay. Lastly, Cody, you mentioned 40% product margins the goal for 2024?

Speaker 2

We're looking really to under about High 30s, very high 30s, just under 40% towards the at the end of the year. Again, few more just a bit more cost reduction based on the scale, based on some supply aspects And then really the rest being driven by just the increased scale as that margin improves and as well And now annual cycle of price increases, which you'll see come again June this year.

Speaker 4

Okay. I appreciate the color. I'll hop the line.

Speaker 2

Thanks very much.

Operator

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

Speaker 5

Thanks for taking my question and congrats on a good number. Just wondering about the sequential increase in sales and marketing expense. Can you give us some more color on the drivers there? Was it in part a function of revenue growth over the past 4 quarters that There are some compensation annually paid. And what's the rationale for increasing that sequentially in terms of what's going to happen what you think will happen in 2024?

Speaker 2

Sure. A couple of things. One is Q4 always has a bump with us in the context of the larger Trade shows the NSC, the A plus A drive a pretty significant variance from Q3 to Q4. One of the other sort of, I would say, less predictable elements of what happened in what we saw in Q4 Was a larger percentage of our leased business going through distribution channels. If our distributors are selling a product, they purchase the product At a discount, but if they sell the product to a lease opportunity, then we wind up paying the distributor a commission.

Speaker 2

So that drove Yes, significantly higher increase in commissions during that quarter. We see that normalizing. That was Really driven by 1 or 2 very major deals in the quarter. See that's going down as we go forward. So you should look to see in Q1 Yes.

Speaker 2

A lot of those single time elements that were driving some of those numbers higher dropped back down. And then there still will be impacts as we go forward from growth from commissions, but as a percentage of revenue, you see that number drop down.

Speaker 5

Super. Can you walk us through the impact that a strengthening Sea Dollar has on your P and L? I presume a substantial portion of COGS and fixed costs are in C dollars?

Speaker 1

Martin, this is Shane here. Thanks for

Speaker 3

the question. So of the different foreign currencies that we have Martin are U. S. Dollar, GBP, euro and Australian dollar and the U. S.

Speaker 3

Dollar visavis the Canadian dollar is the biggest impact as we do our realized and unrealized calculations Each period, as you know, the Canadian dollar did strengthen against all the currencies, in particular, the U. S. Dollar. As a proportion of our accounts receivable, we have a lot larger receivables balance denominated in U. S.

Speaker 3

Dollars at the end of the year, For example, compared to last year, we also have our finance leases and the financing equivalent with C2B denominated In U. S. Dollars that we didn't have last year. So there's a bigger base that the recalculation is getting done over and that strengthening of the Canadian dollar has a more exaggerated Effect now than it would have had in the past on our numbers.

Speaker 5

Super. One of my preconceived notions is that a lot of enterprises, Many of whom are your customers, were rationing spending in anticipation of a recession That's not yet come. Are you seeing any impact of customers releasing some of those budgets? And do you think that could be a positive impact to 2024?

Speaker 6

Sorry, Martin, this is Sean Stinson here. We haven't seen much in terms of restricting Spend from our customers, it's something that we can keep a really close eye on. We look at deal velocity and things like that to tell us If there's something in the market that's coming up. And typically, when that happens, we would see that on both sides of the ocean. We'd see that in the European business and the North American business, but frankly, I haven't seen any of that yet.

Speaker 6

So in our customer base, still strong. Our pipeline for Q1 is strong. So no, I haven't seen either the restriction or the release, frankly.

Speaker 3

Okay. Thank you very much. I'll pass it on.

Operator

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

Speaker 5

Thanks very much. Just a couple of questions. First, in the latter part of the year, you introduced several new features for G6, G7 and X. So Just wondering if you could comment on customer feedback and whether these new features are converting to sales. If you can quantify that at all.

Speaker 6

Yes. Sean here again. Really great feedback so far. These really These features really did target the primarily, I'd say, they targeted the top end of the market for us and that's where they were very well received. So they're not resulting in closed deals yet.

Speaker 6

There is a bit of a lag between the time you introduce the And you see the results of that, but the initial feedback has been very strong and we see the associated growth in the pipeline due to those features.

Speaker 5

Okay. Perfect. Second question, gross margins have now improved, I think, at 7 consecutive quarters, which is just a fantastic trend that you've built here. Just wondering if you could Talk about when you'd expect to see peak margins, sort of how long can you continue this improvement on your gross

Speaker 2

Yes. It's Cody here, Jason. Just a couple of points around that. If you're looking at the overall gross margin, Still one of the biggest drivers for that is the product is the mix between product and service. So it could be a bit misleading.

Speaker 2

You can see that number drive up with our hardware numbers are a little lower. But the real drivers behind both being the core margin for hardware and service, I see really that we're going to hit peak on those early 2025, but continue to see growth saw growth through 2024 On the percentage margin for both our hardware and our service and stabilized out really in 2025.

Speaker 5

Okay, great. Thanks very much.

Operator

The next Question comes from Doug Taylor with Canaccord Genuity. Please go ahead.

Speaker 7

Yes. Thank you. Good morning. A lot of revenue growth highlights to talk about here. I'd like to focus on the net dollar retention rate, which It was again impressive, almost 130% in the quarter.

Speaker 7

Pricing increases obviously is a big factor there. I believe, Shane, in your You mentioned a number of other factors, including increased feature uptake And expanded devices within existing customers. My question is, I mean, can you expand a little a bit on what the relative contributions are from some of from some of these factors with the goal of better visualizing the durability of this net dollar retention performance after the effect of the Pricing increases you put through subsides

Speaker 6

here. Yes. Thanks, Doug. This is Sean again. I think the durability is Strong.

Speaker 6

I forecast higher net dollar retention for the next year. I think we still have a lot of room to grow there. The pricing increases because we have a lot of contracts that are multiyear, pricing increases actually take a few years to roll through the entire thing. There are still more gains to be made based on the pricing increases. Feature uptake is, I'd probably say, if you had to rank these in order, I'd say Expansion of devices into existing large clients is number 1.

Speaker 6

Pricing increases is number 2 and feature uptake is the 3rd Largest contributor. And from an expansion standpoint, we have a real a lot of great Logo is a lot of great businesses we do business with. And in many of those, we don't have full penetration yet. A big part of this and a big part of the reason we're going to be able to grow the MDR over the next year is just continued penetration of those large clients.

Speaker 7

That's fantastic color. Just to put a finer point on that, are you saying you're expecting the NDRs to continue in the same Range as they are or to actually even potentially increase further from the levels we've seen in the last couple of quarters?

Speaker 6

I think we'd say like very modest growth. The rate of increase will decline. I think we've made Significant advances in how we run this part of the business over the past year. So I'll say, I want to temper expectations a little bit, I'd say modest growth on that.

Speaker 7

Thanks for that. I'll ask another question on the G6 ramp, which We've been anticipating you've spoken about the pipeline building, pent up demand in previous quarters, particularly with the features that you've added. Could you maybe just discuss the contributions you've seen to date and whether some of the previous Targets in terms of the number of devices you expect to have live and active In the market, are still relevant in from where you sit today?

Speaker 6

Yes. I mean, contribution to date has been Very modest. Say, frankly, we're behind where we thought we would be on this, but the product is very strong and we are seeing that uptake. So, we had our first couple of large wins with the G6 this last quarter. So, really again cements the value proposition And it's all just about delivering on that value proposition as we go forward.

Speaker 6

So we'll see higher contribution throughout the year, but the primary Products for us will still continue to be the G7 and the axle in terms of revenue mix.

Speaker 7

Okay. One last question for me. The securitization facility, you've been pretty static with the amount that's been Taken up of that or used of that facility. I believe at the outset, you expected to Use that to closer to $20,000,000 I think it's a $10,000,000 right now. Is there anything we should take away from Is there anything deliberate there in terms of your use of that facility or the uptake of lease Based on purchasing versus outright purchases?

Speaker 3

Hi, Doug. It's Shane here. So yes, you are correct. This is a key part of our cash management strategy at BlackLine and will continue Through next year to be that. In terms of the uptake in the period, it does vary period to period.

Speaker 3

I would say the only thing I would add there is Our lead customers, whether they come on as new lease customers or whether they're renewing the different paperwork, different legal contractual obligations that they go through And that we have to satisfy with our securitization partners at C. Moving back to them. So that is one of the criteria that we navigate as we go through the funding requirements. Our strategy is to optimize that to the fullest as we can in each period, but there is fluctuations period on period based on some of the contractual And paperwork that is involved between our customers, ourselves and our Viking partners.

Speaker 7

Thank you, Shane. And everyone else, I'll pass the line.

Speaker 2

Thanks.

Operator

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

Speaker 8

Good morning, guys. I just want to clarify a couple of the questions asked earlier on the call. I guess, first off, You guys alluded to a few larger deals that you were expecting in Q4 that got pushed out. Are they I assume they're still in the pipeline and they haven't been lost, first question. And then secondly, just as it relates to customer buying behavior, it sounds like there hasn't been any There's still some strong demand.

Speaker 8

Have you seen though any changes in particular as it relates to your energy customers just given the softening pricing environment?

Speaker 6

Thanks for the question, David. We haven't seen any softening. Again, we keep an eye open for that because there may be ways we need to react when we start to see that come. So we do Keep a close eye on that. So we haven't seen any of that softening yet.

Speaker 6

Frankly, I've been kind of expecting this for 6 quarters. I think I've been Really like vigilant about watching for signs of recession for a while, but we're still not seeing that in our customer base. Not entirely sure what Q2 and Q3 hold as the price of oil might go up or down. And then to your question about the deals that moved from the pipeline in Q4, they Primarily moved into quarters 12. So we'll see some of that land in Q1 here and then some of those did move into Q2.

Speaker 6

And that's not I wouldn't say that that's an economic softening. That was things that have come up late in the sales process with Specific large clients that are just taking a little bit longer to close, but still strong demand.

Speaker 2

I think I'd add just one thing. A couple of those orders that got pushed out, they The part of the time delay is that the orders are looking to be larger than we were anticipating to be initially. Something gets larger, it gets more complicated. You'll see some of that I think in some of our international world as we go forward here. But Nothing that indicates anything but a strong to Sean's point, a really strong working pipeline for this year here.

Speaker 8

Great. And one other clarification. Just you commented as it related to the elevated or increased sales and marketing Expenses, commissions being paid to distributors for it sounds like a couple of large leasing deals. Can you quantify that?

Speaker 2

Yes. But there was a I mean, if you look at it quarter on quarter, the increase in distributor commissions was Close to $400,000

Speaker 1

Great. From Q3 to Q4.

Speaker 9

Yes. No, that's good, Cody.

Speaker 8

I appreciate the color. Last question, interesting you talked about Rule of 40 target exiting this year, which I think would be pretty impressive, particularly given your hardware mix. Can you maybe talk about how you see that balance between organic growth versus margins? Like are you Do you think you can maintain your north of 30% organic growth this year?

Speaker 2

Yes, that's really Yes. We really wanted to focus on that rule of 40 internally here. You're right. It's a big goal from a software standpoint. If you're looking at hardware enabled SaaS, maybe even more so.

Speaker 2

But Yes. We highlighted the growth we meant we've already done towards that. But it is that point of that balance Growth is the point that we're looking at both increased revenue growth going forward, in that 30% range and moving into the high The strong positive EBITDA numbers. And that gives us the opportunity to develop that focus between our costs and our growth, Getting towards what is a pretty significant target for the company.

Speaker 8

So I assume that you're forecasting north of 30 percent organic to get to that target, you're forecasting north of 30% organic growth And EBITDA margins in somewhere in the single digits.

Speaker 2

Yes. The nice thing about the rule of 40 is that You can look at a range there. Revenue growth can be from 30% to 35% and EBITDA from 5% to 10% Kind of thing. So when you're still and you're in that rule of 40 days. And that's sort of one of the reasons we want to focus on that, not just so much a single point number, but really I think it's a better metric for looking at the performance of the company.

Speaker 8

Yes. I'm just trying to get a sense of exiting the year. I know Q4 is Seasonally stronger, but did you think that you could get to double digit EBITDA margins exiting the quarter understanding that Q1 of, I guess, 20.20 5, yes, might come in below that just because of seasonality.

Speaker 2

Yes. I mean, again, when we're talking about the rule of 40, we're really Talking about exiting with that, so we're talking about Q4. And again, I'd say those Q4 margin the Q4 EBITDA numbers we're talking about will be in between that Yes. Mid single to high to mid single to double to low double and the goals will be From the high-20s to the high-30s kind of thing.

Speaker 8

Okay, great. That's it for me.

Speaker 10

Thanks.

Operator

The next question comes from Frederic Bastian with Raymond James. Please go ahead.

Speaker 10

Good morning and congrats for steering BlackLine on the right path to profitability last year. Lots of info to digest from this call already. But Cody, as you look forward to the next 12 months, what would you say are the Three priorities that would rank highest on your list, be they financial, operational or strategic?

Speaker 2

Yes, it's an interesting question. I think to me it starts with that context of balanced growth. And we use that term internally Maybe a little differently than other people because balance growth for us still means pretty high. We're still talking high targets for growth, But balancing that against really strong cost controls going forward, a little bit more investment as we get Forward towards the end of 2024 into driving that 2025 inside the company that It comes across all the aspects of what we're doing. If you go back a few years, our biggest one of our biggest goals is always Exposure and getting people to understand what the business was.

Speaker 2

When we launched the G7 product, we were doing $11,700,000 a year In revenue, nobody knew who we were, nobody knew what the G7 was, nobody knew what connected safety was. Today at $100,000,000 we're one of the biggest Players in the industry. So that shifts that focus and it really becomes much more business operational metrics that we're really looking at here. Again, that balanced top line growth, balanced cost base. And we had some very significant new product introductions that are happening towards the end of the year.

Speaker 2

From a competitive standpoint, we don't want to get into real details there, but there's some interesting new drivers that are really This year, there's a focus not only on where are we going to wind up in 2024, but what's the trajectory into 2025.

Speaker 10

Great. That's super helpful. I'll leave it at that. Thank you.

Operator

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

Speaker 9

Yes. Thank you for taking my questions and congratulations on your solid progress. I had a question on just wanted to clarify the In terms of the top line growth, you expect top line growth for the year In product and services both in if I understand correctly, your margins would likely keep rising on the product side. And there is some room in services as well to peak in 2025. So did I hear it correctly that you think EBITDA profitability would be in second half only and about 5% to 10% for the overall or EBITDA margins or in Q4 or in the second half?

Speaker 9

I want to understand

Speaker 8

that. Really?

Speaker 9

And I have Sure. Yes, go ahead.

Speaker 2

It's Cody here. A couple of things, some backfires there. Yes, we do expect margin expansion to continue. There will be some variability in that depending on product mix, etcetera, on the hardware side. But there's but again, speaking at that high end of the 30s hitting really In 2024, then a little bit more movement up into 2025.

Speaker 2

Service will see a little bit more increase through the year. Again, there's some potential to reflect For variability enough, but really as those price increases roll through to Sean's point on those multiyear contracts that alone will help drive some of those numbers. When we're talking the EBITDA positive numbers of that 5% to 10% range that is Q4, not the year. So we're looking at a positive year overall, but really the real impacts you're going to see is as the Company scales towards its tradition stronger second half there.

Speaker 9

Right. And thank you for that. And in terms of the Structure build and related OpEx, do you expect more increases? Or is there more of a sales infrastructure to be built out In different parts or are you pretty much done there?

Speaker 2

Really, I mean, the growth you're going to see, There's some movement inside in different aspects, but there'll be inflationary growth across the board. And then from a sales and marketing standpoint, the drivers you're going to see are increased revenue drives and increased commission line. And there will be a point where we're starting to invest a little more into that as far as adding people down the line, but nothing Nothing that's dramatic in any context.

Speaker 9

Got it. And then geographically, I know Canada and U. S. Did really well. Europe was kind of flat.

Speaker 9

Do you expect Growth in that area or and also any specific industries that are kind of not Experiencing this continued growth or slowing down. I hear there's not much of a slowdown, but any specific areas you see that are less growth

Speaker 6

No, not right now. I'd say it's we see growth in a lot of the different markets that we serve. One thing that we are focused on is when we have success in the vertical market in one region, We're getting better at taking that success and rolling it into that same vertical that's in a different region. There'll be changes in buying patterns. Like, for example, we've been successful in the water Business in Europe for a long time, but in North America, the business looks completely different in the water and wastewater processing.

Speaker 6

So we try to take the learnings into North America, but fundamentally it's a very different business here. We are seeing some new successes in Natural gas transmission around the world. So I think that will become another really strong market for us. That's been strong in North America for

Speaker 1

a while and we'll see that growth

Speaker 6

To the question about regional growth, the United States had 89% growth, that's phenomenal Growth over this past year. Europe was a bit softer, but we also the sales team in Europe was a bit smaller This past year than it was before. So we'll see some rebuilding of the sales team in Europe and then that should drive Strong growth again over fiscal 2024.

Speaker 9

Got it. And then my last question is on the G6. Any Can you talk about the contribution to the overall sales mix? Can you quantify that? Is that less than 5%, less than 2%?

Speaker 9

And then how are the margins hanging out? And do you And also about the outlook for G6. Could you quantify that possibly for the year?

Speaker 2

Sure. We don't give exact product breakdowns. As we said earlier, the G6, We got off to it took a lot longer to get this started rolling than what we thought. The launch of that Protect Plus and Protect Versions of the 6 is starting to get the revenues on to track and as Sean mentioned, starting to see some of the real kinds of orders We're seeing that the north of 1,000 unit orders. So this last year, phenomenal impact in 2024, It will become one of the stable products for the company.

Speaker 2

So again, its price points are a quarter of what G7 is, it's Yes. 15 is what an HEXO is. So as a dollar contributor, it's always going to be light. But the really nice thing about the To round out that customer base so that we're able to serve every aspect of that customer's gas detection needs. Again, that's where the 6 is going to be truly successful in 2024.

Speaker 9

Great. Thank you for answering my questions. I'll take it offline. Thanks.

Operator

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

Speaker 5

My questions have all been answered. Thank you very much.

Speaker 1

Thanks, Pardon?

Operator

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

Speaker 2

Thanks, operator. And again, I would just like to thank everybody for their Attention today and their support through the year. This has been a pretty fundamental Year for the company, which has driven us into a position that looks makes us look very, very forward to 2024 and having an even more exciting call a year from now. Thank you very much everyone.

Operator

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

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Earnings Conference Call
Blackline Safety Q4 2023
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