Blackline Safety has an 84 per cent upside, says ATB

Record fourth quarter revenue looks good on Blackline Safety Corp (Blackline Safety Stock Quote, Charts, News, Analysts, Financials TSX:BLN), according to ATB Capital Markets analyst Martin Toner, who reviewed the new quarterly numbers from BLN in a client update on Tuesday.

Calgary-based Blackline Safety, which makes connected safety tech such as gas monitoring and wearable devices with cloud-connected software and analytics, announced its fiscal fourth quarter 2022 financials on Tuesday for the period ended October 31, 2022. Blackline came in with revenue of $22.0 million, good for a 14 per cent year-over-year increase, and adjusted EBITDA of negative $7.7 million compared to negative $7.8 million a year earlier.

“Our results in Q4 reflect a perpetual theme for Blackline as we were able to grow our top-line for the 23rd consecutive quarter as we continue taking share from competitors with our industry-leading connected safety solutions,” said Cody Slater, CEO and Chair, in a press release. 

“Equally important, we executed on our cost reduction goal of delivering Q4 total expenses that were at or below Q2 levels of $21.5 million, representing a $4 million reduction from Q3 levels,” he said.

By segment, BLN’s Service revenue rose 33 per cent year-over-year to $10.9 million, while its Product revenue was flat at $11.1 million. Slater said the company expects to exit its fiscal 2023 “in a position of sustained positive Adjusted EBITDA.”

Looking at the results, Toner said BLN’s topline was lower than expected, with the $22.0 million arriving lower than his estimate at $22.6 million as well as the consensus at $23.3 million. Toner noted that the company’s adjusted EBITDA calculation had changed for this quarter, as it no longer include the adjustment of R&D costs. With that in mind, the adjusted EBITDA of negative $7.7 million was a little better than Toner’s forecast at negative $8.1 million.

“While revenue was light relative to estimates, the Company is making rapid progress building Service revenue and ARR, both of which are valuable to competitors, and are ahead of planning controlling costs. We view today’s results as a positive step towards the Company’s FY2023 goals,” Toner wrote.

The analyst said Blackline is generating more high-margin, high-return revenue per dollar of Product revenue, noting a 12.9 per cent sequential increase in Service revenue and a gross margin of 47.7 per cent, representing a 0.9 per cent year-over-year increase.

For the upcoming fiscal 2023, Toner is forecasting revenue of $108.5 million and an adjusted EBITDA loss of $20.1 million and moving to 2024’s topline at $133.9 million and EBITDA loss of $6.7 million.

With the update, Toner reiterated an “Outperform” rating on BLN along with a 12-month target of $3.50, which at press time represented a projected return of 84 per cent.