Blackline Safety keeps $9.00 price target at PI

First quarter results from Blackline Safety (Blackline Safety Stock Quote, Chart, News TSXV:BLN) came in a little mixed, according to PI Financial analyst David Kwan, who reviewed the numbers in an update to clients on Thursday.

Calgary-based Blackline Safety produces connected safety technology including its leading edge G7 product, a fully connected device that combines lone worker safety and portable gas detection. The company is facing challenges in the depressed oil and gas sector but it managed to grow revenue over its first quarter 2020, ended January 31, 2020, by 43 per cent, the twelfth consecutive quarter of double-digit sequential growth.

Over the quarter, the company also began field trials of its G7 EXO direct-to-cloud, drop-and-go area gas monitor.

“The demand for Blackline services including G7 wearables, cloud-connected software, 24/7 live monitoring and Blackline Analytics continues to play an important role in our global growth,” said Cody Slater, CEO and Chairman, in a press release.

“Our recurring revenue posted a 38 per cent growth, driven by client adoption spanning a highly diversified base of industries and our strong retention rate. In parallel, we continue to invest in our future through the coming addition of area gas monitoring and other value-added connected safety technology, products and services,” Slater said.

In the end, Kwan called the impact of the Q1 financials “Neutral,” saying that while BLN’s $8.9 million in quarterly revenue matched his $8.9 million estimate, the adjusted EBITDA loss of $1.5 million was better than his negative $1.9 million estimate. Fully diluted EPS worked out to be negative $0.05 per share compared to Kwan’s negative $0.06 per share. The analyst estimated BLN sold or leased about 6,000 to 7,000 devices in the first quarter.

Kwan said that gross margins were lower than expected at 45.5 per cent versus his 52.2 per cent forecast due to much lower than expected Product gross margins but partially offset by lower-than-expected operational expenditures. The analyst noted that BLN generated negative $4.6 million in free cash flow and ended the quarter with $25.6 million in cash.

“BLN is facing near-term (Product) revenue challenges from both COVID-19 and the drop in oil prices. Orders are still coming in, albeit at a reduced rate, as the pipeline of opportunities is getting pushed out. Fortunately, BLN’s recurring, high-margin Services revenue (54 per cent of TTM revenue) is still expected to deliver solid growth, despite these headwinds, and should help mitigate expected weaker Product revenue in upcoming quarters,” Kwan wrote.

As for the current COVID-19 crisis, Kwan noted that BLN has been classified as an essential service, although operations have been adjusted in some respects including reduced personnel for manufacturing on account of social distancing.

Looking ahead, Kwan is unchanged on his fiscal 2020 forecast, calling for $39.2 million in revenue and negative $6.9 million in adjusted EBITDA.

With the update, Kwan has reasserted his “Buy” rating and price target of $9.00, which at press time represented a projected 12-month return of 87.5 per cent.