Blackline Safety Corp. (BLN) Earnings Call Transcript & Summary

Greetings and welcome to the Blackline Safety presentation. [Operator Instructions]. I will now turn the conference over to our host, Glen Akselrod, President, Bristol Capital. Thank you. You may begin.

Thank you, Dave, and thank you, everybody, for joining our webcast today with Blackline Safety. The purpose of today's presentation is to give our audience a better understanding of the business through our presentation and then all questions with management. The presentation is going to be led by Cody Slater, CEO, who is also joined by Shane Grennan, CFO. You should see the presentation and the webcast. If you'd like a copy of this deck simply e-mail me at [email protected]. I'll be happy to send you a copy. Well, we do break for questions at the end of the presentation. We ask that you only submit questions using the question-and-answer text box. So if you're listening over to telephone, please access the web link that we sent earlier to ask that question. Remember, you can submit a question using the text box within the portal at any time. I'll ask the questions on the air for everyone to hear and then Cody and Shane will answer. I'm not going to reference any names, but simply read the questions out. As we have a fairly large audience today, if I can't get to your question online and has not yet been addressed during the call and candy, I'll come back to you by e-mail. I'm not going to read the forward-looking statements, but I state that they do apply and ask us to refer to them on Page 2 and Page 3 of this PowerPoint. With that said, once again, thank you for joining us. We're [indiscernible], and we encourage those questions to help you better understand the business and its growth path. And now I'll turn the call over to Cody to start his part of the discussion and presentation.

Thank you very much, Glen, and welcome, everyone. As Glen said, we're here today to talk to you about Blackline Safety. Really underneath that, what we're talking about is what we say, connecting the industrial workforce. We all think we live in this world and we do it. Everything is connected. Your watch is connected. Your phone is connected. You know what's happening, around the globe, from friends to news to people. We work in a part of the world where that doesn't exist, and that's the heavy industrial workplaces. We'll talk about some of the different applications and markets. But -- these are all areas where products are required to do what are called intrinsically safe. Your iPhone doesn't meet that standard, your Apple Watch does not lead that standard. Blackline is the first company developing wearables and technology around that to connect that industrial workforce. As Glen mentioned, the disclaimers, we won't spend any additional time on that. I'd like to spend a little bit of time on what a lot of companies talk about their purpose and their vision. But in Blackline, this really does come down to the heart and the culture of the company. The purpose is to ensure every worker has the confidence to get the job done and return home safe. What we do saves people's lives. This is the first time for many of these workers that if there's a safety incident that are exposed to gas, they had an injury, somebody else knows about it because of what we do. And that drives a very strong purpose and [indiscernible] throughout the company. The vision though is to transform enterprise workplaces through connected safety technology. If you think about it, we have hundreds of thousands of workers and industrial applications around the globe. The devices they're wearing are there to protect them when there's an incident. But in the meantime, they're constantly sending data and information. And we can use that data and information to make those workplaces safer places, more efficient, more effective places. And that's a lot of where the enterprise companies you see adopting our technology are being driven by that data and that vision there. Looking sort of at the business overall and the markets we're in. We'll touch on each of these topics a little bit more into the -- as we get into some of the detail here. But keeping in mind a couple of things on the business model. This is a high-margin recurring revenue growth model. It's very sticky services once companies adopt our services. We're making their workforces safer, better. We just simply don't lose customers once they're there. We have customers across 70 countries around the globe, about 800% growth since we launched our core product, our G7 product. This is a rapidly growing market, the connected worker marketplace -- different ways you can look at connected worker, a 20% CAGR is a reasonable number from most of the outside views looking in. Really, it isn't a hardware-enabled software model, Software-as-a-Service model. So it's combine-with hardware drives that service revenue. Every device we sell as a service plan attached to it. Those service plans have gross margins attached that are actually popping 75% at this point in time. And with something that would be industry-leading 118% net dollar retention, just shows the value customers place on the services we provide for them. Really different than our competitors. The core of what we do is in the world of industrial safety around gas detection. Our competitors are not connected. Well, they have a couple of aspects of connectivity, but very minor. We really are unique to what we do, and that differentiation is what's allowing us to grow 5x faster than our peers. And we've got a good strong background. You can understand how we got where we are. And myself come from a company called BW Technologies, Canadian-based company that became the world's largest producer of portable handheld gas detection now owned by Honeywell. And the company itself that you'll see as we go through the presentation, the industry awards and accolades, it's one really because of the kinds of changes we're bringing to technology and safety in the marketplace. And talk about that technology and safety. One of the core things in what we do, when you're talking about safety and these added values for an industrial customer, it's really important that they have a single-source provider. And Blackline, we do everything. We build the connected devices, those real-time wearable devices. We design and manufacture those. Our portal, our infrastructure system, which is based on AWS, we handle the communication from those devices into our AWS infrastructure. Our cloud-based web hosting platform allows you to see your people, your data, your information, drive that optimization, allow you to respond to alerts, but right up to the level where we will actually offer a service that's a, we call it a personal 911. And actually is where we will actually respond to those issues in the field for your personnel and we're the ones driving the safety response. Saving the company's money at the same time is really providing that overall service. If you go into the industrial world and talk to somebody about safety, the term they'll come back to you is one [indiscernible]. They want one company responsible for it all, and that's really the approach we've taken there. Just touch a little bit on sort of what the products are. So we manufacture that designed to drive that service revenue and what you're seeing on the left-hand side of your screen here is a range of our wearable devices, our handheld devices, the 3 that are sort of beside the large device or what we call our G7 wearables. They're all really one device with a series of different cartridges put on top. That's where you see the 4 [ holes one hole ], one with the bar is really just addressing different needs and different applications. Every customer has needs for devices that have pumps in and that have 5 sensors, 2 sensors, 1 sensor. So you need a range of products to be able to drive the adoption of those enterprise customers. The larger device there is called [ EXO ]. That's an area monitor, monitoring for plant construction, turnarounds all of these feed data into that portal you see behind there. What you're seeing on this side -- on the right-hand side is industry awards, whether it be [indiscernible] in France, whether it be occupational health and safety, every single year, Blackline products are winning industry awards for best-in-class and best new technology. As I said, those devices all drive the ARR. So every one of those devices has a service plan attached to it. The base of the service plan with everything we do is around the base of what you need to do with your gas detection. You need by law to be able to prove that people are using it. They're wearing it. They're what's called bump testing it, calibrating it. It's a huge cost for companies with disconnected devices, the standard device today because they've got to get that device in from the field. They've got to hook it up to a computer, download data, trying to understand what it means. All that's automated with us. But once you have that, then you're layering on additional services, you're layering on real-time 2-way voice, emergency response, all of those services allow us to upscale the price points at which we charge our customers. Each new service has a new value to it. That's what helps drive that 118% net dollar retention. And on that whole ARR side, we're looking at a little over $42 million at this point in time. That's before on the market side itself, the market is really 2 portions. The portion on the left is the hardware portion of the industrial gas detection market. This is an established market, about half a dozen, dozen leading players in the marketplace, but $1.43 billion worth of hardware is purchased every year. Most of these devices last about 4, 5 years in the field. The -- so that replacement cycle is what our competitors are really after. For us, it's really the other side of this chart because it's the services that go along with it because if you think every device we sell, every year, it's generating those services. It's not a onetime event. And that's with that $1.75 million SaaS market. That's what covers costs like that compliance costs, costs like the -- and then the other value services like the emergency response like the 2-way voice push-to-talk radios, et cetera. So how does that break down? If you think about the business model itself, we sell our base devices, our core G7 devices for around $600. Currently, we're at around a 25% gross margin on our hardware. We see that moving up to about 35% by the year-end. Services for us are about a 75% gross margin. We see that also moving up more into the higher 70s over the year. But if you think about it, again, the device has a 5-year life. So if you look at it not from the context -- in the context of revenue, $600 worth of hardware drives an average of about $2,200 worth of service value over that lifetime, 5-year hardware cycle. But on the margin side, the service margin is totally dominant. It's that 75% gross margin drives 90% of the value we get out of that contract from the customer. 100% logo retention is something we're really proud of. We don't lose customers. Any customer of scale has adopted our products has kept them. And generally speaking, what it means is they're continually expanding that helping drive that net dollar retention. And getting us to that ARR levels into those 40-plus million. And you'll see, as we talk about that a little bit further going down. The only last point I'd make here is we always talk about a 5-year life time cycle for customer or a new customer. But the reality is at the end of 5 years, they just buy new hardware. This whole cycle just starts again. We now have had our G7 in the product in the field for 6 to 7 years. And every one of those customers that are hitting that 4- to 5-year life span just buy new product and start that whole cycle again. Just touch on some of the financial aspects here in a little more detail. Looking at a trailing 12 months. You can see the revenue in the company was up about 30%. Gross margins up as well on the hardware side. services side grew about 38%. So faster the growth than the hardware over that period of time. Gross margins averaged over the year, 72%. We'll talk about where we're at the latest quarter in the next slide. All driving that growth in revenue, growth in gross margin and really one metric that I think people looking at this company should really focus on is to watch that ARR as that grows because that really is driven both by our new customer acquisition and by the quality of the services we provide and that retention level we get from customers. Paying a little more detail if we look at our last quarter, which was just announced, we're on a little bit of a strange year-end. Our year-end are October 30, but this is our Q2 here, we're talking about -- you can see that our total revenue was up 45%. Total gross margin, actually up 77%. I think it's really important to look, we grew our total revenue by 45%, but we're able to bring our OpEx down by 10%. We'll take a look at some of the details of how we're doing that a little bit later, but that drove a dramatic change in our adjusted EBITDA, down by 62% as we move towards hitting an adjusted EBITDA positive inflection point at the end of this fiscal year, which is the company's target. And you can see from those charts that we're well on that path. [ That's on ] competition. And I want to -- I guess, a couple of points within here. There are some very good companies in the world of gas detection. We have some very solid competitors. My old business is the yellow one on the corner that says Honeywell. That's BW Technologies. Mine Safety Appliances as the name implies, they have a huge relationship in the mining industry, bite lots of other spaces. They have strengthened. Industrial Scientific is now a company owned by Fortive. Again, U.S.-based, very strong, good quality products, good quality, huge penetration in the marketplace. Drager's a German-based company. You could say the same about the mall. These are the real leaders in the industry they each have a core presence in the marketplace, but they're producing products that are no different than they were 10, 15, 20 years ago, frankly. There were devices that the individuals that they're in trouble. They deep and flash when there's an exposure to gas. Hopefully, you can get out of the area. Every one of our devices has that connected aspect where if that alert occurs, somebody else knows about it right away. Someone's got your back. And it also allows us to do the layering of services. Most of our competitors, only 1 or 2 of our competitors' devices even have GPS in them. So even if you did get the data from them, you don't really have any value to that data because you don't know where it was generated. They are all moving down the path of connectivity, both MSA and Industrial Scientific, each have an offering that has a direct-to-cloud connectivity. And in MSA's case, it's a [ Ford ] gas device that truly is direct to cloud but has no 2-way voice, no push-to-talk radio makes it very difficult to compete against the kinds of products we have. Industrial Scientific has an accessory for one of its devices that can allow you to be connected. My view -- our view is that they're all going to move down this path. But we're so far down the path already. We have data lakes that have hundreds of billions of points and then we have customers and industries around the globe. It really becomes difficult. They're going to have to build their entire product infrastructure to be connected and all the background to it. They'll get there, but we're there first. And I want to touch on some personal aspects here. There's a couple of things. This is a gentleman by the name of Nick, we call it Nick's Story. This is sort of the core use case you can think of from a safety standpoint. This gentleman was working in an environment. He was exposed to gas, hydrogen sulfide, hydrogen sulfide. It's the first thing it does, if you're hit by a large level, as you're paralyzed and knocked down. There's an alert comes through our portal. The people see that it's a gas exposure. The individual is down. We're able to actually vector a nearby worker to get the proper safety apparatus before they enter, get in, get Nick out and Nick's-the rest you took place in time that Nick has a live stay. Same here, and this is things you don't think about, we talk about gas, but again, this is something no other competitor do. This is an individual on the top here from [ monitor ] that fell from a ladder. He was working on ladder that he collapsed. Our device has fall detection, the fall detection goes off. Again, the monitor in this case by our safety operations center. They see what's happening, and they are able to -- they try to read out to the individual, no response. They direct near my responder coworker to that person. And all this gets recorded. You can hear the call, you can hear the individual screaming call 911, as she comes around the corner and sees her coworker line there. When the ambulance got to the site, they said if they were 5 to 10 minutes later, they would not have been able to resuscitate this gentleman. And when you look at these brands, the reason most of those 2 people are alive today is because the company they work for chose Blackline over a competing product to provide their safety. None of our competitors would have been able to do what we did in those cases. And that's where you see industry leaders across this logo deck. It was one thing I'd like to point out as well, too, when you talk about the industry here. We are a Canadian-based company. We do make safety-based products. A lot of time, people think for that people think that will mean we're an oil and gas services kind of company. Oil and gas is a great market for us. It's a very -- one of the more significant ones in the world, and Canada is about 60% of our business in the U.S., a bit more than 40%. In Europe, it's probably 5% to 10%. But every one of these verticals is a core marketplace for us with interesting names and applications. Consumer goods, food and food packaging companies like Hysan are big, big customers for us and owns in India. Amazon is every warehouse where they use refrigeration. Refrigeration uses ammonia. We monitor their workers' safety in every base every Amazon worker, every Amazon facility in the globe that has refrigeration. It's a small portion of their workforce. I want to be clear, but it shows the strength of the application of the product. Left-hand side, you talked about the industrials water, wastewater and Europe is a big thing. In North America, these are regional cities run their own water and wastewater in Europe, its regions. In U.K., there's 12 regions. Each one puts us in RFP every few years to replace their gas detection. There's been 6 RFPs led in the last 4 years. We've won 6 of them. There'll be 6 more or less in the next 6 years, we'll in the next. They're so specified to what we do now. It's almost impossible for a competitor to get into there. British Aerospace builds nuclear submarines, FedExs their wing tank entry people, aircraft maintenance. It's a nice diverse market, both the industry-based and geography-based. That diversity helps with our growth because you might have one industry that's in a down cycle, one industry that it's an up cycle. I think that sort of helped the level for us. If you look here, what we're looking at is the growth in the company since we launched our core gas detection line of products, the G7 products, -- the red line is our hardware. The top line is the services. And you can see the hardware takes a little bit before it takes off, and that's because this is a totally new technology. It's a new company and a very established industry, but started to really take off. And then where you see the dip, that's something called COVID. All of a sudden, we're in a position where you can't get on a customer site, you can your field trials, et cetera. Our hardware sales actually dipped for a little bit there. But the company continues to grow. We've had 24 quarters in a row of year-over-year growth, driven by that ARR and that business model of every device driving a new service plan at the end of the day. Just touching on some of the numbers. You have 4.5-fold growth over the last 5 years. It's more again about that retention and that diversity. If you look at the right-hand side, lot 5 years ago, this company was a company that was a Canadian company with most of its business in Canada and most of its business in oil and gas. Now you can see the shift in that diversity. The U.S. is our biggest market. Rest of the world, that tiny little slot up at the top, you can watch that for the next year or 2. That's going to be a dramatic growth sector for us as we really put all the pieces in place to be established in markets like the Middle East, like some South America and other markets that are core for us to grow into the future. We touched a couple of times on ARR or annual recurring revenue. And again, just a chart to take a look and see over the last couple of years, how that's changed and shifted. And you can -- you had interesting elements here, not only the overall growth, but the growth in that top line number where you're looking at that sequential growth quarter-on-quarter. We're going from being 7% to 8% to 9% over time as we see that additional retention of new services, new feature sets come into place. But this really comes from the fact that our products and our people do a good job. The customers we have are serviced well. They like to see value in what they do, and so they're likely to not only renew but renew at a higher level for more services as we go forward. That's a little bit on that shift in the operational expenses, and this is something a lot of tech firms did 3 quarters back now, we took a shift in approach to saying we're going to be purely growth focused to getting that focus to be more on hitting an EBITDA number in a more rapid period of time. And you can see sort of what's -- what's happened here over the last small period -- last period the last few quarters. again, product revenue up, service revenue up, but every cost base structure denim sales and marketing, product development, all down, driving leading to that significant improvement in the adjusted EBITDA. And again, something that we're targeting to see shift in the positive territory at the end of this fiscal year for us. [indiscernible] saying this is -- I mean a team is a pretty deep team in this company and lots of people who, again, customer-facing, were we have just a whole culture here that's all about that customer getting that person home safe at the end of the day, led by a very, very strong team at the top, I'd say. BW logos you see on some of these [ that will BW ] those will be people who were from my old business BW mentioned we manufacture our own product. Kevin Meyers started the manufacturing in BW we were doing $15 million, left when they were doing about $200 million. Christine Gillies is one of the more recent additions to our management here, a really strong understanding of that marketing from the software side and from the people side. We're more of an engineering tech firm. So we needed that human side, I think, to the company as well, too. I just good strong strength Sean is our President and [ CEO ]. He's President and Chief Growth Officer here, is one of the people in the industry, I'd say who, along with myself, know this market as well as anybody in the world back up by a strong Board of Directors. I just mentioned a couple. We've got good strength in accounting and in legal from Bob and Michael, Barbara and Cheemin came with on with us about 2 years ago, bringing a really good background in software services, Barbara out of Microsoft education department we getting better software than Microsoft. Jason is from our most recent director here from a company called Sierra Wireless, strong tech success in Canada and the -- in that IT world. And Brad Gilewich is the representative of our single largest shareholder, which would be DAK Capital [indiscernible]. Shane, I'll just ask you to...

Yes. Certainly, Cody, and thank you, everyone. As Cody mentioned earlier, our fiscal year-end is an October year-end. And the numbers that we've referenced here are from our April results, which were released in mid-June. Our July third quarter, those results should be released mid-September. On the left hand side in terms of our holdings and insiders, including large -- our largest shareholder, plus management boards is around 32% of our shareholding with institutional investors than holding the vast majority of the remainder. Our cash and investments at the end of our second quarter was just $22 million. From a debt facility point of view, we have a [ $50 million ] Canadian facility with financial institution in Canada ATB Financial. We've drawn down $7 million of that $8 million remaining. We also have a new lease securitization facility, which we announced in April. We sell our products and services through 2 mechanisms. One is through bundles, by paying your hardware upfront and the service paid upfront over a period of time. Around 25% of our product revenues comes through the lease offering that we give to our customers, which is paying monthly over a 4-year period. Around 25% of our quarterly revenues on average comes through that facility. And the lease offering has been extremely successful for Blackline over that period of time ,ensuring our customers are on board for a fast a 4-year period. That has been successful, obviously, from a sales point of view but has been challenging or from a working capital management perspective. We put in place that securitization facility, which is over $50 million available to us on that. And that has certainly improved and normalized the cash funding facility, whereas the cash funding for our product is received upfront now through that facility with Canadian Western Bank. Our ARR, as Cody mentioned, has grown exponentially over the last number of years and today is at $42.4 million. Analyst coverage, we have 9 analysts that currently cover Blackline Safety and 8 of those are Canadian-based coverage with one of those [ B Riley be ] based out of the United States.

Thanks, Shane. I'd just like to finish it up today just with a final slide here just to touch a little bit on the remainder of this fiscal year for us. It's -- as I said, this is a year we've focused on that path to profitability. We're anticipating exiting -- generating positive adjusted EBITDA in our final quarter here. That's really based on the scale we've put into the business in the past, implemented cost rationalizations and it's well above that growth and that expansion of the optimized -- the margins as well, which are -- you're seeing our margins in both service and hardware move up based on price increases that were put in place, but also just based on the scale of manufacturing and focus on that cost side. We've launched a new product called our G6, which is entering a new market for us. So this is a single gas what's called a 0 maintenance. It's more for contractors on large sites. That's a $200 million annual market. You'll start seeing an impact from that in our Q4 and then really some significant impact into fiscal 2024. As Shane mentioned, strong balance sheet -- strengthen our balance sheet, particularly with that lease securitization, which is a great thing for us to normalize our business model. We like selling the lease model. It's a higher margin, longer retention model. This makes it easy for us to do that without putting a strain on cash. And there's still large opportunity that's for us to start further monetizing services, data, all that information, our devices fit into the background. As you look into 2024, you'll see the company focusing on continued growth, scalability improve margins throughout as we go down through the path of taking a greater and greater market share and securing our position as that dominant player in the industrial connected workforce. And with that, I'll hand it over to Glen for questions.

Super, I think we do have quite a few questions in the queue already. And to our audience, if you have a question, please use the question box to log in your question. So I'll just get going, and I'll sort of augment some of these questions and combine them with some others. So first question is on technology. If you could just give a little bit more color on this, Cody, what exactly is the technology? Is it most spectrometry? And I'll add to that, what is the additional benefit of the new G6 technology.

So the core -- I mean, every one of our devices has a series of aspects that make up this core technology. In the context of sensing, there's a wide variety of different sensing technologies we utilized to sense different bases. You need [indiscernible] oxide if you're going into water, wastewater, you need hydrogen if you're going into steel. So those are sensors that are either optically-based sensors, they're chemically-based sensors, photoionization detection sensors. So a range of technologies that allow us to have that breadth of we monitor 26 different gases can be combined as to different aspects. The real core of the technology in the device itself, everything we do is a connected device, either cellular or satellites, similar technology to what's in your mobile phone. The real tech behind that, though, comes in the software side in operating the back-end infrastructure, the alert structure, the data management structures are all part of that. And all of that's wrapped into a single piece that's easy to use, take it out of the box, turn it on and it works. When you talk about the G6 and the difference in technology, when you -- this is a market that's been dominated by a product BW I designed back in the BW days, it is what's called 0 maintenance. So the big thing with that is there's no training and giving it to an employee, so I can just give it to them tell [ them to wear ]. To be able to do that, one of the things you have to be able to do is not charge it every day. It's like you get into that market is like having an Apple Watch that lasts a year. And that's sort of where the technology has changed in that whole connected world where you can use newer technologies to connect IoT devices that are much lower power consumption. It enabled us to bring out a device that has a single gas sensor but still has that connected aspect and has a yearlong battery life enter into that space. So it's really -- I think the key thing to think about is it's understanding where to apply that technology for each individual market and different vertical aspects in those markets.

Okay. Next question. You've highlighted your competitive lead versus the market as being hinged on the massive amount of data that you've connected. But how do you use that data to create a lot? Can you do it or develop that competitors can't without the loss of data lakes.

I think that -- I mean I'd start with the moat that we're developing against our competitors is first starts with the suite of connected devices. I've mentioned some of our competitors like MSA has a single, let's call it, 4 gas device out that has connectivity, direct to cloud. I'd say, again, with all respect, I think they made a mistake not including 2-way voice. It's hard to do some of the things you want to do with the products that do that. But having said that, they've got one device that is connected. If you look at those large logos on that customer site, none of those would be able to buy just -- you could not satisfy any of those customers with that device. You need also a pump instrument, the 5 gas instrument, the one gas instrument. So the [ moat ] starts with the devices. The most -- the next portion of it really is the trust in the field, does your connected system work. This is brand new. And then backed up all by the data. We do have a few hundred billion dollar billion data points in our data lakes -- that data is owned by us. And it's really about how you leverage that for value to the customer. How can you show them that you can improve time on tools, time on site, how can you look at intrinsic safety elements. It's about leveraging that data. And frankly, customers are more attuned to that than we are almost. It's more often the drive from the customer with that question, how can we value proposition the data comes from. It's the whole -- everything together, makes it very difficult for our competitors to catch up with where we are in the world today.

Next question. Do these devices need to be regularly calibrated? If so, how often is that a revenue opportunity that is included in ARR then?

That's a great question. The devices need to be dependent on which particular device. They need 2 types of things to happen to them. One is they need to be, but it's called bump tested. That's where I basically put gas to it and see it still deep and flashes. It's really varies dependent on the customer in the industry, but you can say typically every week or 2 weeks, I'll be doing that with some customers, it's daily. And the calibration is based on the particular sensor technology. Usually, that's every 60 days, every 100 every 90 days. Again, dependent on the particular sensor technology. We already do leverage that the aspect of being able to tell the customer that those things have been done properly. So if there is an incident, they don't have to worry about when occupation health and safety takes that device and downloads the data. They know that device is in compliance. It's been bump test maintained. The actual delivery of the gas and actually saving that is a portion of the revenue-generating aspect is something we're going down the path of where our devices will be able to monitor your gas usage so that the device can actually tell you the system can tell the distributor to bring more gas to that location. That's something we haven't deployed yet, but it's absolutely a potential revenue-generating portion for the business.

What percentage of the market are greenfield opportunities versus competitive versus a competitive situation? Has this changed over the past few years?

In general, you'd say that 90% of the market is like greenfield would be 10% or sub 10%. Greenfield's new applications more -- in other words, the markets we work in are areas where primarily gas detection as a safety device is a legislative requirement or it's a corporate requirement. So we are almost always -- you look at those customers in almost every case, we're replacing an existing system or a solution. What we do find is that customers expand the -- the use of the gas detection often in the markets in the particular application because of the added value of the connected. They can now get some data, some information. The 2-way voice. We think we can -- so that's why I say there is a portion of the market that is really an expansion within those customers.

Next question. What are the secular trends that are driving adoption of Blackline's products other countries where the importance of worker safety is increasing?

The trends are I think there are 2 -- let's just say this, quality companies always care about their employees. They want to provide a safe working environment. I think the first thing you say is that there is regulation that drives that. There's regulation that says you need to have gas detection, you need this, you need that. But what I do plan is the larger companies like on a Dow Chemical or Exxon. They don't really -- their safety is based on their view of what's the best way they can handle that. They at least meet the minimum of the regulations and they're not so dependent. -- whatever country they're operating, and they operate at the same level of safety, I guess, what I'm trying to say there, Glen. The trend comes around people -- companies from the safety standpoint want things that are better. A number of times I've heard someone say, "I don't want to have to call a person's house again and tell them that their partner has died. That's part of what drives this always the improvement in safety. But I'd say the data side and that information side is a huge driver for us now to -- companies being able to see that just to be able to turn on the screen and see where every one of your workers are on site around the globe is a huge powerful element. So the connected side is really driving the adoption from the visibility data, all those kinds of aspects.

Next question. Do you always sell the 5-year life hardware front? Or is it also offered the manual plan that doesn't have upfront hardware costs like Axon's body cameras.

Yes, it's sold in both bundled and [ upfront plan ], where the hardware is paid and upfront plus the service plan over a 1-, 2-, 3-, 4-year period, depending on the customer needs. And we also sell that through a new program in recent times through rental facility as well, which we can do.

And the lease program as well, too, where the customer is paying a monthly fee for the bundle of hardware and services.

Okay. I have a number of questions around competition. So I sort of just put it to you in 1 or 2 statements and then maybe let you address it. So the general gist is why haven't the legacy companies gotten to the connected devices at the same speed that you have, especially given these are bigger, more cash-rich companies. And from those other companies, who would you say is the best competitor?

I have to think about how many of our competitors are listening on the call before I answer the second half of that. I think there's a series of different reasons. This is a market that's been pretty stable and stable. The products they've been making, they sell -- they are shown their portion of the market. It doesn't change -- there isn't a lot of shift within that. Most of our competitors are tougher large gas detection is not necessarily the big driver. If you look at Honeywell gas detection is a tiny portion of Honeywell. If you look at Fortive gas detection, a small portion of Fortive, is MSA during the pandemic, they were making a ton of money selling reading apparatus and emergency responder equipment. So for most of our core competitors, gas [ affection ] isn't the core of their business. This is a very different approach. It needs different technology. There is a lot to develop. They could -- they all have the money to do it. But it's also a different method of selling. You need to change your sales infrastructure. You can't sell it the same way you sell. It's a much more technical sale, much more involved. I think there's just a lot of inertia. They're all going to work down towards this path, and they will all get there, and they'll allow a portion of this marketplace, but I really do believe it's just timing and inertia here that are keeping them -- they're not passed to what they do in the space, but they know where they were leading the way. They know where they need to go, and eventually, they'll get there.

Okay. If a potential customer does not select Blackline, what is the typical reason?

The biggest things are what I've bought before, the first thing you're always battling against is typically you'll find an [ ISC ] customer may have been an ISC customer for 20 years. So there's relationships, there's history from a purchasing standpoint. It's easy to buy what I thought before. the other side can be cost, but I think on costs, to be clear, it's a lack of understanding of what your cost of the operating of your gas detection is like we won as water, wastewater is primarily on cost because they calculate and know how much it costs them to get that compliance information. That means they have to get these devices from the field back to central location, download data, process the data, figure out what it means, get it back to the supervisors. If one truly understands what the costs are, we believe we provide a cheaper overall operating cost. But if someone's just looking at the single point of quote that might be the case. So it's -- generally speaking, once we're down a path that you have the -- sorry, I'll finish off by saying the other reason that's been probably the biggest reasons people don't buy our product is because they didn't see us. That's less and less today. We now -- if you go back 3 years ago, every customer we had was when we acquired in an outbound base. Now more and more, you're seeing that our customers are inbound. And that's because we're known in the market. We have scale in the market. And that's probably the biggest shift for us.

Next question. Can you talk a little bit about the application and your TAM expansion opportunities for your solutions led to Amazon cold storage ammonia example.

So I mean, if I'm understanding the question right, from the standpoint of the applications for the device use itself, I mean that grows every time we look at a new vertical segments, you're looking at something new that requires to get into well. We're adding [ remediation ] in the near future to our area monitored. That will take us into homeland defense into fire emergency responders into new applications with basically the same technology, one new sensor. So it's really, if you think about Amazon is a good example. Can you broaden that case into other workers in their space. FedEx is a great example that FedEx is already looking with us at other applications than their aircraft maintenance. It's often very much understanding the use and the particular application and seeing if what we have is the right product at that point in time.

Okay. A couple of questions around, I guess, your sales and your sales strategy. So first off, if you could talk about how you address your current sales strategy? Are you -- do you have your own team? Are you expanding teams, they're using third parties? Just a little bit of color on that.

Sure. I mean core when you think about we have regional sales managers around the world, we have about 55 RSMs. They have -- in each of those territories, there will be distribution as well. The distribution functions a little differently depending on the market. And in Europe, more of our distributors are more likely to lead a sale than in North America. They're a bit more technically oriented. But for each market, it would be regional sales manager distribution supporting that. And then on top of that, a business development group that looks at taking those relationships from the field level of the company, they're going to shallow or something like that and taking it to the corporate level.

Okay. And then can you provide some color on your sales cycle, how long your sales cycle? And has this changed over the last few years?

Yes. Great. I love that question because if you go back 5 years ago, our sales cycle could be as long as 2 years, like literally from introducing them to a company, they then something totally new, never seen a connected gas [ detector ] for what does it do? Does it work? Don't know if the company, don't know who you are. Today, the sales cycle is still long for us. It's still probably typically 6 to 12 months on large-scale sales but moving more into that 6- to 9-month territory.

Okay. Clarification question here. During your formal remarks, did you say that you have a securitization facility? And if so, what are you securitizing?

Yes, that's correct. We're securitizing our products that we sell through our bundled lease arrangements. So we bundle or monthly fee, both the product and service offering, and we're directly securitizing the unheld and [indiscernible] monitors that we sell through the lease program.

Okay. You've seen strong growth across all geographic segments over the last few quarters, specifically in the Middle East, given it's rather new geographic segment for you, what are the opportunities you're seeing there?

Middle East is a great market to look at and sort of how the company views these things. We first put feet on the ground in the Middle East almost going back 3 years ago now. It's -- the Middle East is a very complex marketplace. There's special requirements, particularly for connected devices that exist nowhere else in the world. So you've got a lot of boxes to tick relationships to build before investments to make before you can start seeing the revenue generation. You're seeing that now in the last few quarters. And I mean, it's a huge market opportunity for us. It's a very these very large corporations there, largest in the world. they're very brand -- they're very focused on their overall operations. So a little different market than a lot of the North American companies in said oil and gas base where you might be going site-by-site there is much more sort of a top surface level. So there's some scale opportunities. It's -- to put it into numbers, it's moved from being a nothing percentage market that rest of world, we call it the 7%. And it will -- even though the rest of the business is growing, it will start growing, it will be growing faster for the next 2, 3 years, at the very least.

Next question. Do all of your customers have to purchase or lease the hardware from you in order to provide the services part of the revenue? Or can customers only use the hardware or use their existing hardware from other, I guess, providers and only use your services revenue for reporting analytics, professional services from other devices.

It's solely -- the customer has to buy our devices for the reasons that our business model and our competitors' devices don't have that connectivity. So can't provide the data. But even -- so there are other aspects of data from customers will take into our data lakes that we can use some of the day-to-day generate from other things. But in the context of that core wearable, it's all Blackline-provided product.

Okay. Super. Thanks. We do still have quite a few questions in the queue, but I would encourage anybody else who has a question. Please use the question text box to ask that question now. Next question, what are your ultimate profitability goals as a percentage of revenue at what business mix and revenue level do you foresee this occurring.

Goal is really for us there to hit 30% EBITDA and the mix would be about 75% -- at that point, 75% services, 25% hardware.

Can you give an example of how you could potentially further monetize services and data?

Sure. A good example on the services side is a service we brought out not that long ago is that it's called push-to-talk or PTT that allows the device to operate as a walkie talkie. We're actively working on modifying some of the way that functions and work on people so that you could monetize that to a greater degree in others. In that case, it's a bit of a shift in how the hardware functions to enable it to be easier utilized on the service side. That's a significant uptick on the services side. Things like our safety operations center, an interesting one to look at. So our safety operations center is that top level where we monitor people's workforce directly. We're the ones who dispatch either their own local responder or 911, that's primarily a North American-focused service. We have our own people in North America that do that. They run the safety operations center in Europe right now, it's to third parties. Through third parties, it's never a successful a sale. So we will be moving that internally. So we'll be putting our own people in France, Italy, Germany, et cetera, to be doing that safety operation center response. We did this -- when we did that in North America, our uptick from SoC when it was third-party was 10%. Now it's about 40% to 50%. If you look at it on the data side, it's all about these different dashboards we can provide. You can look at things like time on site, time and productive territories. A lot of these are big things for companies where you've got a lot of third-party workers on your site. You've got mass specs where you can look at things like worker to craft ratio or craft to supervisor ratio -- helps understand predictive safety. Back on gas heat maps or things that depend on -- like in production and manufacturing facilities, tell you a lot about the operational base of your facility. And it really is -- I don't want to say the sky is the limit because that just sounds like a bit of a grandiose statement to say. But anything that you can leverage that is from the context of where a worker is and what's happening around them is part of that opportunity down the [ path ].

Can you touch on your customer concentration in terms of potentially what is the largest account in terms of a percentage of your overall revenue?

I'd summarize that to say we don't have such a concentration. We don't have any customers that are greater than 5% [indiscernible].

Next question for you. Are there any -- is there any regulation either present or on the horizon that could help improve or accelerate your business?

Certainly, like, again, the core adoption of gas detection is something that's heavily regulated right now, and that is part of what drives our business. I think it's interesting to look at that regulation side and see what happens down in the future. It does -- do the regulatory body shift from saying it's enough to have a gas detector that goes deep and flash to say now that the technology is readily available, you need to have a gas detector that tell somebody else that person is in trouble. The basis of the whole industrial gas detection market came about when it became reasonable enough cost to build a multi-gas detector for confined space entry that when OSHA said in the U.S., okay, now we're going to legislate this. I don't see that necessarily on the horizon, but it should -- they should be looking at that. Like this is a definite -- once the technology is available and you can prove that it's that much better the regulations should follow.

Next question is you guys have clearly done this before. So first, I guess I'm going to come in a couple of questions here in my own way. First is, did you guys have to deal with any noncompete when you started Blackline given the past history? And given that you've done this before, I guess, how do you think about potential future M&A for the business, both as potential an acquirer or being acquired?

I mean I speak to that, obviously remind no noncompete issues at all, but like BW long before I got involved with Blackline here started down this path. I think that if I look at the differences, to me, there's such a fundamental difference between the 2 businesses, BW was – I mean, BW is a great company. It was growing during its whole lifetime at 30% when none of our competitors were growing more than 5%. And it was by innovating in the marketplace, bringing out those products like that 0 maintenance, et cetera. Blackline's to me, that's the same on steroids, if we're innovating in so many different ways and with so much additional value that that's what's really driving the growth and the opportunities here. But I think the 2 different business models drive different -- in my old days in BW, we were eventually acquired by a company called First Tech out of the U.K. and then acquired by Honeywell, really all industrial companies as a Board, I think we turned down 5 offers for acquisition before we felt one was reasonable for the company. If you look at Blackline, I think the biggest difference in the context of someone -- our focus is we want to own this industry, we want to keep seeing that top line and bottom line growth. That's what everybody here is focused on. I think the difference here is, though, that people who might be interested in this company are going to be broader than those core industrials. It's not just going to be Honeywells or the standard industrial players. It's going people to understand the value of that data and that even better maybe than we do. For Blackline acquisitions, right now, that's definitely not a focus. I mean our focus is on that EBITDA and seeing that grow and moving the margins forward. There will be points of time, not really in the fixed or hardware world, but there's potential different bolt-on additions of software that might make sense somewhere down the line, but nothing on the near horizon.

Super One more question for you, and then I'll just ask you for some closing remarks. So next question is, can you talk a little bit about your manufacturing capacity, where you manufacture? Do you outsource? Do you have your own manufacturing? Just whatever color you could provide on that to our audience.

Sure. We manufacture the hardware all here in Calgary, Alberta. We do that from the surface level up. So we design all the materials, the in for the plastics, everything else that plastics are run here or in China as well, but the manufacturing surface mount lines and the assembly lines are all here. Current facility, we feel we can about triple our current manufacturing capacity and something we can scale quite readily without a lot of capital infrastructure behind it. So and having that control and doing our own manufacturing is -- makes that easier for us to be able to see that future and expand within it. So it's all internal.

Perfect. Just some closing remarks for you, and we'll end the call.

All right. Well, I'd just like to say I appreciate everybody's time today and the questions. It's always great when something like this truly engaged. Obviously, we're pretty big supporters of Blackline here. So as everybody who works here, and that there's over 400 of us that make up this company. It's not just a couple of people. And I'd really say watch, if I were to leave the final remarks, it's watch this space. This is going to be an exciting ride for the next few years, both for ourselves, our investors and our customers.

Perfect. Thank you very much, Cody. Thank you, Shane. Thank you for our audience, and this concludes this presentation.

Thank you. All parties may now disconnect.