Better than expected revenue numbers came in from Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSXV:BLN), according to Beacon Securities analyst Gabriel Leung, who delivered a client update on the company on Thursday.
Founded in 2004 and headquartered in Calgary, Blackline Safety is a hardware-enabled SaaS company with worker safety monitoring products and services in Canada, the United States and internationally.
The company’s primary product offerings include the G7C and G7X wearable safety devices, the G7 EXO cloud-connected monitor, and the G7 Dock, which is used to calibrate the G7C and G7X devices.
Leung’s updated analysis comes after the company officially released its fourth quarter financial results. Blackline Safety’s report was headlined by $19.3 million in revenue, significantly outpacing the Beacon estimate of $14.4 million and producing 51.8 per cent sequential growth, along with 66.8 per cent year-over-year growth.
The biggest source of growth was in product revenue, which more than doubled sequentially to $11.1 million to significantly beat the Beacon projection of $6.5 million. Leung attributes the win to larger deals made in the quarter, including contributions from a previously announced $7.8 million deal with a US-based natural gas and electric utility company.
Service revenue, including software service, slightly outperformed in the quarter, with the $8.2 million final total coming in slightly above the $7.9 million Beacon projection and marking 10.3 per cent sequential growth.
“These results show that our invest to grow strategy over the past 18 months is now paying dividends,” said Cody Slater, CEO and Chair of Blackline Safety in the company’s January 20 press release. “We look forward to seeing the ongoing impact of our enhanced sales, marketing and product capabilities that will continue to strengthen the business and drive growth throughout fiscal 2022 and beyond.”
Blackline Safety’s EBITDA report was more in line with expectations, with the reported $8.1 million loss being just slightly off the Beacon estimate of a $7.5 million loss.
Gross margins, meanwhile, came in at 46.8 per cent for the quarter, an improvement from 46.2 per cent in the previous quarter but down from the 56.4 per cent reported in the same quarter of 2020. Leung notes that the year-over-year drop is primarily on account of the company’s changing revenue mix, as product gross margin came in at 30 per cent compared to 40 per cent in 2020.
Leung noted that product gross margins were negatively impacted by component shortages, higher than normal freight charges, higher warranty and scrappage costs.
Blackline Safety incurred operating expenses of $18.7 million, including $486,000 in bad debt expenses and elevated contractor/consulting/legal/bank charges of $596,000 in general and administrative expenses.
However, according to Leung, operating expenses will likely remain at elevated levels as Blackline Safety continues to capitalize its global opportunity in terms of broadening its distribution and expanding its product offering, particularly with a ramp-up in production of the company’s G6 safety devices.
Free cash flow was reported as a loss of $15 million, including operating cash flow as negative $13 million and capex of $2.3 million. Working capital of negative $5.5 million was impacted by a $4.1 million sequential increase in receivables due to the product sales in the quarter, along with longer cash collection periods due to COVID.
With the fourth quarter results now released, Blackline Safety’s final 2021 revenue total came in at a record $54.3 million for year-over-year growth of 41.4 per cent. Looking ahead to 2022, Leung has the revenue projection set at $75.9 million, implying a year-over-year increase of 39.8 per cent.
In terms of valuation, the year-end totals mean Leung’s EV/Net Revenue multiple for 2021 is set at 6.4x, a drop from the reported 9x in 2020, with a further projected drop to 4.6x in 2022.
Meanwhile, with research and development still ongoing, the final adjusted EBITDA loss for Blackline Safety in 2021 came in at $25.3 million, with Leung projecting a further loss of $27.8 million in play for 2022.
“Looking into FY22, we believe that Blackline’s investments in sales and marketing and R&D could pay off in the form of continued strength within both its hardware and services revenue lines,” Leung said. “We believe the expected launch of the G6 could also be a key revenue catalyst for the latter half of the calendar year.”
Blackline’s stock price has dropped by 19.4 per cent over the course of the last 12 months, though it’s had a boost of 6.8 per cent since the start of 2022. Despite a 52-week high of $30.80/share on June 23, the stock has otherwise been relatively flat.
With the update, Leung maintained both his “Buy” rating and $11.00/share target price for BLN, representing at press time a projected return of 67 per cent.
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