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

Glen mentioned the forward-looking statements. There are a little bit of an eye chart there, but you've all seen those before. Every company has that. But I really want to start off here with the purpose and vision of the company. And I think this is something you hear from all kinds of companies. And often, they're really just words. But for Blackline, this really is the backbone of the company. The purpose to ensure every worker has the confidence to get the job done and return home safe. What we do is different than anybody else in our competition. We make wearable devices that allow somebody else to know a worker's in trouble in heavy industrial applications where this has never been done before. There are people who are going home today to their families solely because the company they work for chose Blackline versus one of our competitors for their safety program. You think about a wearable device, this is something that's transmitting data all the time. We're understanding we're allowing customers and companies to understand better everything their workforce is doing on a daily basis. The background environments in their workplace, all kinds of data that can help them transform that workplace, make it more efficient, more safe and more effective organization. We're a hardware-enabled SaaS business. That's one thing to keep in mind as we talk to this, we'll go through that in some detail. If you look at that top headline there, fastest-growing integrated hardware software company, that's one of our analysts doing an analysis of the entire North American landscape here. And particularly in this industrial space, we're one of those companies that's able to grow top line and you'll see the impacts on the bottom line as we move forward through some of this as well, too. Big market. We'll talk about that in detail as we go forward. Background here. My background is a company called BW Technologies. BW Technologies is the largest provider of portable gas detection in the world. So these are devices that workers wear that tell them that the air they're breathing is dangerous. Again, the difference between us and companies like BW is we tell somebody else about that and what's happening in that background base. That's what's driving our growth, 761% growth since we launched into this marketplace, that HE SaaS business model is a really impressive business model, I think, especially if you have the right metrics behind it. We have a 100% attach rate every device we sell has a service plan attached to it. And we'll talk about the net dollar retention, the key element for a software-based company of 129%, something truly industry-leading. Initially the industries we deal with and the kinds of elements that they're looking for, one of the things that really is key when you think about safety on an industrial workplace is this is a -- it has to be a one-stop shop. You can't have a company that provides hardware and another company provides some connectivity and another company provides response or data. It just doesn't -- it's not acceptable in the context of the value and the requirements they have from these industrial workplaces. So it's really key to think about Blackline. We manufacture and design our own wearable devices. Think about these like Fitbits on steroids. They monitor the environment the workers in, they monitor for falls. They can do all kinds of other things as well, which we'll touch on. They all reprovide the connectivity into the cloud. That cloud-based platform allows customers to see their workforce, manage elements manage emergency response as well, too, that data that is coming into that platform allows them to look to modify how their workforce functions, how their facilities function. That's what's really transforming that industrial workplace. And it's one of the core drivers of large-scale adoption by enterprise customers. And right up to that top level, we call it the personal line 11, our safety operations center. We monitor about 45,000, 50,000 people through that directly. And that's where we're actually the ones instituting the emergency response, calling 911 or 999 in Europe were directing local responders and making sure that the outcome has changed for that worker in that workplace incident. I said, again, when you're looking at this market, companies need -- or one source provider, but it's not just for everything we talked about in the last slide, it's for all their gas detection needs as well, too. And if everything isn't communicating into this portal, there's little value in just one device to another because every one of these large customers have single gas devices, multigas devices, for gas devices, pumped instruments, unpumped instruments, area monitors. Every -- we do everything. So we can walk into a customer, supply all their needs for their traditional gas detection, but it's all connected to that Blackline portal. The right-hand side here is interesting. We've got tons of awards for growth for all kinds of things as a business. But these are awards from industry-based organizations, occupational health and safety, innovation in Preventica in France. These are industry-based recognized organizations that say Blackline's products are the best in the world, and we won 25 new industry product awards since we launched the G7 product really speaks just to the value proposition we're bringing to the market. Again, talk about that hardware-enabled SaaS model. The first thing starts with the attach rate. We have 100% attach rate. Every device we sell is connected. Every device starts with what we call a base service plan. So this is a service plan that allows the companies to meet their legislative requirements for compliance, prove that people are wearing the devices, using the devices, maintaining the devices, bumping, calibrating. This is something every other gas detector in the world, it's a manual process. It's expensive to do, and it's all reactive. It's not proactive. We turn it into a proactive element that is just part of that service plan. It automatically pops up in your portal. And then you just layer on additional services, real-time visibility, real-time management of alerts, 24-hour safety -- the 7 safety monitoring. We can turn them into -- we have 2-way voice devices, we can turn them into walk you talk, we can make them a push-to-talk like device. All those additional service levels helped drive that net dollar retention that driving that ARR up as customers every year when they renew or every multiple years when they renew, they renew for more devices, protecting more of their workers and adding more services to it. It's key when you think about that, when you look at this slide in our pie chart here, the left-hand side, that's a very traditional market. It's a market for around 5 million gas detectors deployed in the world on any daily basis. They get replaced about once every 5 years. That generates that $1.4 billion marketplace. That's a fasted Sullivan number. Every one of our competitors, that's all they sell. They sell into that marketplace. But if you think about our model where every device can have a service plan attached to it and have that additional SaaS side to it. That adds $1.75 billion to that market. And that portion of that market is something we can expand. The more services we have, the bigger that market gets, the bigger the opportunity gets. And if you look at what that drives next, it drives really that whole basis of the revenue side drives the margin side of the model. And this is what's really key when you look at everything we're doing. The hardware side of our business ranges from one product to another, but an average hardware sale will be around $600. That's around -- we generate a 32% gross margin on that. We do see that moving up to about 40%. So around a $200 hardware margin on a sale for a device. But if you think about that 5-year device like, that generates $2,200 worth of service revenue over that device and again, more services added to higher volume, the higher number that gets to. You look at that 77% gross margin, that generates almost 8x the margin over that 5-year life cycle than the hardware does. And key to think about this is it's -- we talk about this is a 5-year model, but it's not. At the end of 5 years, companies just simply buy new hardware. They opt for new services. This is something where if we're doing our job right, we should keep those customers for 10, 15, 20 years. And you can see that in our logo retention. We've never lost a customer. Our net dollar retention is 130% 129%. That this really shows the -- that shows the value customers see in what we do. I touched on the competition, and it's apply true, they can't offer the value prop we do, but they're good companies. There's good businesses in this industry. Companies have been doing it like Industrial Scientific and MSA have been supplying gas detection for 50 years. They make a quality product. They have a brand recognition in the marketplace there. Both ISC and MSA or U.S.-based competitors. The yellow products you see there under Honeywell, that's my old business, BW Technology, so probably about the largest supplier of gas detection in the world. Then we've got companies we can be within Europe, Drager, Coco, all good companies, but none of them have the value prop we do. And they're starting down this path, Mine Safety Appliances has brought its first connected device. Again, when I mentioned before, you need to have that range and suite of products to get a large-scale customer. But they've also brought it up with a way lower value proposition. There's no 2-way voice on the device. I can't call a worker in the field. I can't use it like a walkie-talkie, I can't call a work or I can't instigate that emergency response. We really are significantly ahead of the competition, and that's what's really driving our growth as we go forward because we have that full suite fully connected and we just keep layering more value and more services onto that. This slide is a little interesting. Every year in the United States is the world's largest safety show, the National Safety Council, Vessel Safety Commerce, I should say. And one thing we do is every year, we invite our analysts to come to that show. 9 analysts that cover the company. And they will listen to us and we tell them, and of course, like every company, we tell them we're the best. We tell them we're ahead of the competition. We like them to come to the show because it allows them to see themselves. They can wind around and see every one of our competitors putting on their best face to the customers and to the market. And you can see from the quotes they come up with the same comments we do. Our competition is nowhere near where we are in the marketplace. I guess sort of driving that further home, what that difference means, you can talk about growth and all these things. And when you went at the beginning, we started with the G7, we were doing $11 million a year. You can be growing at 50%, 60%, 70%. It's still pretty meaningless. We were basically 10% of one of our largest competitor, MSA. If you look at -- the reason we highlight MSA here, just briefly is that MSA is one of the only competitors that actually reports on this segment of portable gas detection. So these numbers are from their financial reports. Over the last 5 years, they've grown 23%. They basically grow with inflation. We've grown in that same period of time, 463%. We've gone from being sort of insignificant comparison with them to being half their size, and we continue to grow at that 30-plus-percent top line level. In 2, 3 years, we'll be the single largest company in this industry space, generating more revenue from this market than anybody else. Our other competitors, Honeywell Fortive, they both report on their safety segments, and both are down. You can infer different numbers. Both are down somewhat. I'm thinking the gas detection. We know the market well. We are taking competitive customers from them. Every one of our customers is from one of these core companies. So it really just shows the market acceptance of what we're doing. And I touched on the safety and what are the reasons for that market acceptance. This is just one of examples of many of -- I'd like to look at this as this is an example of a worker who's going home to their family today because the company they work for chose Blackline not one of our computing products. This is a worker who was working in the oil and gas space. They were exposed to hydrogen sulfide, H2S in a high level. We'll lock you out. You're paralyzed and you only have so much time to rescue that individual -- every other device in the world will just beef and flash. It tells me time in trouble, but I can't do anything about it. In this case, we're monitoring the individual. We see the incident, we reach out, can't respond. You can see the gas levels right away on the device. We directed nearby responder, coworker, tell them to suit up properly. They're getting, get Nick out really, again, because that company was using our products, Nick is going home to his family again today. And that really helps understand like when you look at this logo set, this is one of the core drivers of why companies adopt us. It's becoming more and more about the additional values around it, but it starts with that safety base and a really broad selection. I think a lot of companies -- a lot of people will think this is a Canadian-based Calgary-based company that does industrial safety, must be an oil and gas supply company. Oil gas energy as a broad market, including renewables is a great market for us, and that's something that's constantly growing for us. But utilities, [indiscernible] water, wastewater in Europe, massive organization to do exactly what you think. They supply your water, treat your water. We've won 6 of those. There's been 6 RFPs left in that industry over the last 4 years. We've won every single one British aerospace, manufacturers nuclear submarines, with Amazon, it's refrigeration. Refrigeration is ammonia or you can kill you, we monitor the Amazon workers to deal with refrigeration. EDX wing tank entry is the aircraft maintenance people. They're the fourth largest aircraft operator in the United States. We currently protect about 200,000 people, and it's important to note in over 70 countries. Touched on gas, and that's one element. But because we're connected, you can start bringing all these other values into it, too. This is a case where there was a fall indicated an individual fell off a ladder. If you're wearing a device that only alerts you, there's no point in telling you, you just fell. In this case, alert comes into the portal. They reach out, there's no response. They can see the whole work site. They can see the nearest individual who is a coworker, drive that coworker there. You can hear this, it's all recorded in our operating systems. And they're screening call 911 when the when the responders got there, they said if this was another 10 minutes later, the worker would not have survived that incident. So it really just helps drive underline some of the reasons why we're succeeding against our competition in the market. So looking at some of the numbers going forward. You can see here the growth of the company since we launched our -- into this marketplace with our G7 product. And I think it's interesting to look, redline here, is hardware, gray line is services that dip in our hardware growth. That was COVID. At a point in time, especially with the new technology, you can't do field trials, you can't do onboarding on a site. It was very challenging for us to maintain the momentum and growth on the hardware during that time. But the growth for the company just continued. We've had 27 quarters of year-over-year revenue growth, and that's because of that hardware-enabled SaaS model. We're back to the world being more normal. You can see that hardware accelerating again and now both elements are the core drivers of our growth. I mentioned that sort of thought of Canadian company focused on oil and gas, go back 5, 6 years ago. That's really what we were. The biggest market for us was Canada, the biggest market was energy. Today, the United States is our single largest market. Europe is growing and continuing to move forward. Same with that Rest of the World segment, you'll see each of those segments continue to grow and Canada become a smaller and smaller portion of the overall business for us. When you look at that growth, that's just talking about the core of the revenue, but diving into the numbers a little bit deeper, the ARR, the recurring revenue for us is a really key element. If you think about all those hardware businesses, you're starting every year, reselling. I mean, yes, you've got a customer base, all those things, but this is a real driver for our growth that recurring revenue. And you can see the strength of that over the last 1.5 years, a couple of years, going from $27 million to over $50 million, 40% growth over the last year and just continuing to see that move forward. Really, I love seeing this because this really to me, speaks about the value our customers see in our products and our services. They wouldn't be renewing for more and moving that numbers forward if they didn't value what we did. That's the top line we're talking about. If you look at the bottom line side, though, that's been a real focus for us in the last 1.5 years, like a lot of tech companies were really purely growth-focused as we're building ourselves into the market. Now you've seen the business model start to shift to more maturity. In the last 1.5 years since we moved down that path, you've seen our revenue double, but really, you've seen the gross profit move almost to triple the number at that point. So accelerating well past the revenue growth. What's driving that? Well, a couple of different things. One is the core margins we make on our products and services. Our hardware margin has moved from 10% to that 32% I mentioned before, that's driven by price increases, supply chain management and really just scale. We manufacture our own products, so bigger scale, bigger margin. Service is similar sort of a story that has been worked on -- there's been price increases. Those take longer to flow through in the service world because it's about -- we can have customers who have 2-, 3-, 4-year service contracts, but you've seen that move from 68% to 77%. Our targets long term are around 80% on that services side and around 40% on the hardware side, all driving that strength going forward. It was mostly like showing charts that are doing this. This is a great chart to show going the opposite direction. This is our operating costs. So while you saw all those revenues moving up to the right-hand side, you're seeing all the operating costs as a percentage of the revenue move down from one side to the other. You've seen our research and development as we were doing a lot of the heavy lifting into the software side, et cetera, in 40%. We're now down sub-15%. G&A moved from 37% to 19% and sales and marketing from 57% to 37%. If you look forward in the next year or 2, you'll see the G&A and the research and development would be relatively stable numbers, like around $4 million in research and development around $6 million in the G&A side. Now the inflationary increases, but nothing significant as the revenue continues to grow. And you'll see that service line come down into the mid-20s percentage as a target going forward a bit. All that's driven a dramatic change in our adjusted EBITDA, going back 1.5 years ago, we were 70% negative on our adjusted EBITDA, a true growth company. Now we're just -- we are a tiny a bit negative in our last quarter. You'll see the company shift in the latter half of 2024 into EBITDA positive. And you can just see the trend and it's really driven by everything we were just talking about in the past there. Just looking at a snapshot, our year-end were October 31, a little bit of a strange year end. But so we just announced a little while ago, our 2024 numbers, our Q4 number really, again, one of these interesting things where I think you're seeing -- you normally like to see all these arrows going up, but you saw a company that drove revenue up 36%. We drove our gross profit up 56%, while bringing our OpEx cost down 3%. And that all resulted in that 76% improvement in the adjusted EBITDA. Looking at the full year, really similar story, just some different metrics to look at what's sort of driving some of these things. Hardware revenue up 33% gross margin in that up 10% over the full year, services revenue up 41%. It's really nice to see that service is growing even more rapidly than the hardware and that margin moving up 6%, driving that overall revenue to north of $100 million and a gross margin improvement of 9%. And really, a key number to focus on is that recurring revenue at the end. That $51 million is our starting point going into 2024. All this is driven by a really strong company. I mean we touch here on the C-suite, but beneath our vice president's level or directors level and really everybody in this company. This company outcompetes our competition, not just because of how technically sophisticated we are and how we approach the market, but really because of the drive everybody who works here has. Touching on a couple of people joining me today, Shane Grennan, our Chief Financial Officer; Sean Stinson, our President and Chief Growth Officer, Sean comes from Mayo business BW back in the day was a product manager has spent years in this industry and really is one of those people, along with myself, would say who really understand the industry, the customers and what they're looking for. Christine's brought a real flavor of software to us, where a lot of us are from our own hardware background marketing officer from a company called Benevity here, so a real understanding of that software and how to market and how to push what we're doing into the marketplace. Strong board as well too. People like Jason, who ran a company counter called Sierra Wireless, became a $1 billion company. Barbara of Microsoft, good, strong strength on legal and accounting. I mentioned Brad Gilewich, Brad is the representative of our single largest shareholder, that's DAK or the Katz Group of Edmonton. That's Daryl Katz of Edmonton's family fund. He's the gentleman who owns yet mention oilers, one of the healthiest gentleman in Canada and has about a 24% holding in the company. So just touching on a few of the fundamentals, and then we'll talk about some next steps here. But the fundamentals, if you look at the share price here, actually, it's about 4 days today is a couple of key things to look at insider holdings. I mentioned DAK. They're the biggest insider I'm the second biggest insider in the company. We're really an institutionally held. Most of our shares are held by institutional funds and long-term funds, understand the business model and what we're trying to do. We think there's a large pickup opportunity in our multiples as the market such recognize what we're really doing. And you can see that recognition from the analysts that cover the company. We had 9 analysts covering the company. And the ones that get it really do get it and have that buy, outperform, et cetera, and you understand that this is something that's going to keep driving for a period of time. So this finish talking a little bit about where we see ourselves positioned going forward. First thing to talk about is the balance sheet itself. The company has never in its history, had a stronger balance sheet, $29.2 million worth of liquidity and our cash burn driving down to low single digits and going to positive later this year. The lease securitization facility, a Quick Point to make their -- we sell our products in 1 of 2 ways. You buy hardware and then you buy a service plan or you buy our product through a leasing program. Leasing program is great because it's 4-year retention. There's lots of value proposition to it, good margins on it, but it's a terrible cash flow model. The securitization allows us to sell that hardware portion of the lease to a group called CWB Maxium, and that just normalizes the business model. You've seen those KPIs moving in the right direction. We have a target, and this is not an end target but a midterm target of hitting around 20% market share over the next number of years. That's around a $350 million, $400 million revenue number. Those numbers, when you look at the mix between service and hardware, we feel will be generating around a 30% EBITDA. But the real focus for the next year here in 2024 is to reach the Rule of 40 -- to become a Rule of 40 company at the end of our fiscal year. I like Rule of 40 because to me it's a balance between revenue growth and earnings. And to be clear, that's your revenue growth plus your EBITDA needs to be north of 40%. And my own view, a company growing at 60%, losing 18% EBITDA is not a Rule of 40 company. It's not a sustainable business model. At the same time, a company growing company generating 42% EBITDA and shrinking 2% a year is not a rule of 40 company. That's, again, not sustainable. A real Rule of 40 company, which is sort of the gold standard in the software world is a company that you can see is going to generate that strong top line growth with that strong bottom line, and it's going to do it for years to come. And that's really where Blackline is. We're in the position now as a mature company showing that business model successful and the market success and the moat we have against our competition that we can achieve that growth going forward year after year from now forward. So with that, I'd like to -- I'll end the presentation. Probably, I'm sure Glen around a minute is to over, but we'll open it up for questions at this point.

[Operator Instructions] So your first question, Cody, is, it looks like the company has done a great job decreasing operational burn. Can you give some more color on what exactly management has done to reduce the burn so dramatically? And how it hasn't sacrificed any revenue growth as a result.

Yes. And there's a lot of elements to that. It's a good question because it is something -- there isn't one single piece in this when you're trying to say we want to continue to drive growth, but you want to see that cost implications as well, too. We wind up with -- in our world, we reduced our workforce by about 10%, 15%. Really, it's a lot of focus on efficiencies within the business. And I'd say it's the scale of the model as well, too. But every portion of the company. One thing we do as a business, we always set aggressive goals and targets, our goals into the black. Every single individual in the company would talk to you about that, whether they work in our production line, whether they're in our sales force. So it's increasing prices, managing product development base, everything put us into that position where you could drive both top and bottom line.

Next question. We understand that you manage about 50,000 people presently through your cloud connected devices. Can you comment on how many you'd need to manage in order to achieve profitability?

So just to be clear, 50,000 of the ones that we actually adopt are what I call our safety operations centers, that's another service level where we monitor them and we respond directly. We have about 200,000 workers in the field right now. that are utilizing our services. And you saw the company within 3%, 4%-- within 4%, 5% of profitability in the last quarter. So a 10%, 20% increase in that, and you're starting to shift over into profitability numbers.

How much is the company currently spending on R&D? And how do they expect that trend to continue in the coming years?

So right now, you have seen a slightly lower number in Q4, but there were just some different elements now, but call it around $4 million a quarter. The way I look at research and development and R&D team is doing a brilliant job right now. We're launching 2 new major products late this year and early next year. And that's sort of the cadence we want to be on. We want to launch one new major product a year. If we're doing more than that, you're flooding the sales channels. You're confusing -- you're competing with yourself, frankly, at the end of the day. So we really see that being a pretty stable number. Yes, for the inflationary growth within that, but nothing significant. And again, for the next few years, that would generate that ability to put in the field on new major product every year.

And I guess on the same theme, what are you seeing in the market in terms of product innovations and revenue drivers? Are you looking to bring out new products to market over the next 12 to 24 months?

So yes, for us, we're always looking at new products. And they are really the key different elements. One for one aspect is looking at getting into new verticals. So when one of our core products is called the EXO, it's an area monitor. It's the big device sitting behind me here. Big battery. I drop it in an area monitors that for a period of time. In our case, we run for 100 days on our battery. Our competitor is mostly a week. But we're adding, as an example, radiation to that device. Radiation is an interesting separate vertical. We don't sell in that market now. We're adding an 8 gas version. That's again a more of an emergency response hazmat world. So there's product innovation that gets us into new verticals and then there's product innovation for our core products that are really looking at just adding new services, so we can increase that potential ARPU for device. So it's really based around the solid knowledge of the market and what that customer is looking for.

And I think you addressed competition during your formal slides, but maybe expand on it. How should an investor think about competition? Is the market big enough to accommodate other players with the technology and specification similar to Blackline?

For sure. The market is -- like we -- if we're doing $200 million a year in hardware like some of our competitors are our service would probably be triple that, your math, there's lots of opportunity in this market to have multiple players with the same tech stack as we do. The reality is our competition isn't really catching up. We still believe we've got about a 3-year lead on our competition. I think that's being reasonably conservative. We've seen one of our competitors the MSA launched a truly connected product. So it's got a [ symadine ] mobile direct-to-cloud, but a very small -- a very limited subset of what services they can provide. So they still need a lot more work to do. I do believe our competition will go down this path. They're just taking a lot longer. I think one of the things to keep mind with our competition too is they're mostly diversified large companies. They're divisions of a diversified large company. If you look at it in MSA, they do -- they multibillion-dollar company with a couple of hundred million in portable gas detection. You look at ISC, they're own by $4 billion to the $10 billion, $12 billion company with a few hundred million in gas detection. One of the things that is advantage for us is we just do have that unique focus on the marketplace.

This is a bit of a long question, so I'll do my best to read it, but I think it's a good one. Do you drive service revenue from every hardware product sold, i.e., either customers that for any reason, wants to use the product without the services components where you get that revenue as well as the recurring business? Is this not how customers use Blackline? Is that the kind of customer behavior specific to users of Honeywell, MSA and other competitor products that do not provide full suite of services like you do.

Yes. Good question. You're right, Glen. And every product we sell has a service plan attached to it. So we don't want -- and it really comes down to the customer case at the end of the day. There is going to be a segment of the market that will never want the value proposition we have. It's not a big portion because really that first base level of service we sell is something anybody being compliant with their gas detection needs to provide that what's called the compliance data. Is somebody using it is somebody testing it, et cetera. So every one of our competitors, I need to take that device back, download the information that's in it, try to figure out that out with work schedules. So there's a reason for even the lowest cost provider lowest cost companies to pick our services. And then everything else on top of that is depending on the value proposition you're looking at. So just taking it back at the beginning of the question, everything we sell is connected, the devices don't function without a service plan attached to them, and that's really what our customers are looking for. And really, that's the way the whole market is moving.

Perfect. When looking at the current markets you service, are there opportunities beyond industrial, transport, energy and consumer? And if so, how relevant is it for you to look at customer acquisition in new markets?

Yes. So I mean, just take a quick example of a couple of things. Fire and has met. That's been a new entry point for us this last 1.5 year or so, it's really been something -- we have a lot of products that were great for that marketplace. It's really been about tuning our marketing to it. You sell differently through a fire station than you do to a chemical plant. It's a different needs requirement, different pitch. So we've had a good focus on that. Our growth in that has been from sort of nothing to a few couple of million this last year. You'll see that continue to grow as we add more value and more and more new products than that. So everything what we look at is the applications where it's a truly -- it is a hazardous location. It's a difficult work site. Typically, they're industrial that can be on to anything where I'm needing something that meets requirements that are called intrinsically safe so that I can't take a mobile phone on to the sites we normally deal with. I can't in fact I can't take my Apple watch on a site we normally deal with. So focus on heavy industries and industries that have that real value prop.

Do your margins differ materially geographically or from segment to segment, like between industrials and consumer.

Again, our customer base is, if you look at it moving from, say, you can call it an Amazon a consumer-based product customer and British Aerospace and Industrial, margins are basically the same across the board. The product is the same. The adoption of services very more, not by the industry, but by the particular customer or application. Is it worthwhile for them to have the push-to-talk radios is it worthwhile for them to have with 2-way voice. Those kinds of things are really more what drive a differentiation in the service margins, but the hardware margin is the same across the board.

Great. And again, regarding competition, I think you've answered part of this question, but there is a part that you could add on to. How would you quantify competition risk? Are you competing with multiple companies? Or do you view it as a more monopolistic, I guess situation?

So we're always competing with multiple companies. And I think you have to think about it. We're competing first with the incumbent. So basically, every device we sell, we're replacing something. It's a replacement cycle when a plant is it that's 4-year, 5-year time, whether they bought industrial scientific MSA, Drager, they need to go out and buy new hardware. So the first thing you're competing with is the incumbent supplier. And then when you have the same value problem, I think like if you look at it from the context of our competitors, they basically -- most customers just readopt the same product because it's easier. I mean one gas detector is about the same as the other. They work. They were both the same. They cost about the same, not a lot of reason to shift. We're the ones giving them the reason to shift. So our competitors will be in there. If that's a Drager customer, MSA will be trying to sell them is I'll be trying to sell them, but we're the only one walking in with something different.

It is a lot of education required. In other words, do you need to convince decision-makers why this is effective necessary? Or do you just need to convince decision-makers that your product is the best option?

Less and less. If you go back when we launched the product, it's something nobody has ever seen before, connected gas detector, all these different elements, people, I think, intrinsically understood this value, but what is it? How do I understand that? The conversations from our sales teams are dramatically different now. Customers. Companies understand this. They're the ones asking us the right question, the last time to push it forward. And it's been a real state change over the last few years.

Can you discuss what happens at the end of the 5-year hardware cycle for G7 devices? Can the customer keep using the device without continuing to pay for the software?

No, at the end of the device is really the end of the life of device. Device to life is really -- we say 5 years; it's really determined by the use case in the field. If it's how hard the usage, how beat up it is. But typically between 4 and 5 years, you're just reaching a point of the end of term in the life of the device. If the customer decides the key on the service side is that without paying that service contract, the device doesn't function. So if they wanted to try to get more use out of it, but it just becomes problematic at that cycle. And if something customers are so used to. In the gas detection world, it's been decades whereas companies repurchase their hardware every 4 to 5 years. But the difference for us is that once you -- the one thing I'd say to add to that is once the customers get involved with the data, the connectivity, they're using this for their compliance, they're using this for their deployments, they're using this for emergency response, it's really hard for them to pull that out. Like how do you remove all that. It's not just changing out a piece of hardware anymore.

Okay. Great. I'm going to combine a couple of questions here on the same theme. It sounds like your main competitive advantage is related to the way your equipment communicates and interacts with your monitoring. Have any of your competitors started to emulate what you've done? And if not, why?

Yes. And the first competitor that started to emulate us is MSA Mine Safety appliances. They bought a product called the IO 4, which is their first, it's a Fords connected gas detector. And I mentioned before, it does a lot of what ours does, but also does not do a lot of what ours does. So I can get visibility to my workforce. I can see an emergency alert. I can see whether my devices are compliant, but I can't talk to the worker in the field. I can't talk to another workroom respond to them. Also their back-end portal just because of scale. We have a portal that has hundreds of thousands of devices in it, that manages hundreds of billions of data points. So what we can provide is very different than them. But this is their first entry point. They're starting down the path. And MSA's a good company. They make a good product. They'll fix the problems they've made with their initial launch, but they'll have to launch another product in pumped instrument, a multi-5 gas instrument, a single gas instrument, an area monitor. I do believe MSA is one of those companies is going way down that path. I think our competitor in Industrial Scientific is going to go down that path. But it takes time. There's a big tech stack to do what we do.

Can you comment on what the split is between your direct sales and partner or channel-driven sales?

Direct sales is realistically 2/3 of what we do. It varies a little bit by geography. In Europe, it's a bit more distribution-focused. Distributors there tend to be a bit more technical, able to sell a more technical product like ours in North America, a bit more direct focused. But really, if you think about -- we have what we call regional sales managers throughout the different territories that we supply product in and that we compete in and they're typically involved in every one of the major sales.

When you sell your products, are you displacing an incumbent or are there greenfield wins still? And if you displace somebody, who is it most often you're displacing?

Yes, great question. So if you look at realistic -- well, if you look at the first sale into any customer is displacing one of our competitors, really varies by where we are. And water, wastewater in Europe, it's CoCom was the dominant player of BWO business. It can be -- it really does vary. So it's -- but it is those top providers. There's a lot of small -- there's a number of small companies in the gas detection industry that's sort of at the bottom feeding level. It's not as often that those are the customers we're targeting. So our initial purchase by a company will be replacing that competitive product. What we see though is greenfield is once the companies have a device that does what ours does. It has those added values, the easier compliance, the 2-way voice, the visibility of workforce, what we've seen in every one of those customers is that they expand the usage of the devices. Again, those water, wastewater, it's typically -- they're using typically 20%, 30% more product than they used to, just because it's a different product has a different value prop. So the greenfield is more, I would say, on that ability to expand the market and expand the use case by site. And of course, all the services we're providing are greenfield. Like if you think about it in that respect, 2-way voice on a gas detector, greenfield, push-to-talk radio, greenfield, all those things are -- that's why I say that service side of our big donut there is the one that you can really see we can drive the growth from that.

Okay, great. What would you believe is the biggest constraint to your growth rate?

It's there's always a bunch of balance within that. Part of it is we are focused on that bottom line as well. So you're not -- we need feet on the ground in places. We're in the countries we want to be in, but we'll slowly grow as we need to -- well, sorry, as we reach market saturation with the individual we have, say, that RSM and market will add another one and another one, you could probably accelerate the growth by expanding that dramatically. But you're going to do it so much, and it really doesn't make a lot of business sense where we don't have competitive but we don't have a direct competitor in our offering. The real intrinsic base in the market itself is that hardware cycle. Every customer that MSA sold last year or last month, we can't replace that customer for 4 to 5 years. They've just spent $0.5 million, $1 million on their hardware. So there is that -- just the core construct of this market by that turnover of product means that there is a limitation to how quickly you can take the market share. But as long as you have that retention, which we do, you just keep taking more and more, and it just keeps driving that number forward.

I guess this question is a little bit guidance related, and I don't know you don't give formal guidance, so I'll ask it and you can answer if you feel it's appropriate. Can you comment on what the size is in dollar amounts of your current sales funnel and comment on your sales cycle?

So in the context of the funnel, I guess, maybe I'll say we don't -- you're right, Glen, we don't give guidance. So I don't want to directly staying to our competitors, the size of our funnel. What I'll say -- well, the funnel, if you look at that analyst list we had before, one thing will comment on the analyst average expectation for this year as the company will move from about $100 million to around I think it's $128 million. Our funnel support set our funnel is definitely big enough to support that as we go forward. So we see that as being -- I'd also say when you talk about the sales cycle, if you went back to when we launched this product, a major customer was a $100,000 order in the first place. That was probably a 2-year cycle. Today, a major customer is a $1 million order, and it's probably -- it's sub a-year cycle right now. So that is -- that's just a sign of the maturity of the company and the maturity of the market and the understanding the market has of our business proposition.

Perfect. Can you discuss the differences between your lease program versus your rental program? What percentage is devices versus cartridges? And is there any software attached on rental units?

We'll try to tackle that. So rental is short term, typically 30, 60, 90 days. So these would be a plant construction site, what's called a plant turnaround, where shutdown portions of my facility to do maintenance. These are temporary locations at the end of the day. So our rental is bundled. The services are bundled into the price point, and so you're selling both hardware and services as a single daily rental fee. Whereas if you look at our lease side, the lease is really just a different purchase model for companies to buy our product center. And the lease is always more -- far more service than hardware. These customers tend to be pretty high adoption customers too. I think once you're only adding a few dollars a month to your lease, it's pretty easy to add those extra services. So the lease is a nice lease is nice because you get a -- it's a 4-year lease uncancelable, good strong retention, and we tend to get a higher service adoption within the lease. But is vertical-dependent, some industries like it, some industries don't -- the thing about the rental to keep in mind. So rental is a segment that if you watched our financials, it's moved from $200,000 2 years ago to $2 million to $5 million last year. We see that continuing to grow into this year. That's -- it's a nice revenue. It's a nice business, but it's new customer introduction. But when I talk about the cycle of the purchase of gas detection, there's a different cycle for things like a plant turnaround. It's typically every 2 years. So maybe that company is not buying for 3, 4 years, but we get on the site to get to see what our products do, understand the value prop. It's really a sales channel for us. It generates business for us -- new business for us, new customer introduction.

What are some of the untapped verticals that Blackline could enter in the next couple of years? Is a lot of product development required? Or is it constrained by a sales force focus.

Yes. I mean, it's really now -- there's a nuance to it now, I would say. Like if you look at one of the next verticals we're entering is the gamma radiation market. So gamma is -- so we're talking about radiation detector. It's really our EXO. Our big area monitor with a new sensor technology put into it. Dominated by a company called RayeSystems that's got a really, it's a 20-year-old product, the area rate. If you think about it, if someone wants to compete with area rate in that market, it's a phenomenal amount of development. For us, it's really adding a new -- totally new sensor technology, but adding a new sensor, changing some of the configuration of the device. We're already connected. We're already everything else. And it's really -- it's an emergency response market as well as homeland defense market in the United States to actually monitor major sporting events, major concerts with these kinds of devices. Our cloud connectivity is a brilliant technical advantage for them because they put these things down and fruits, they can see all the data. We just don't have the right sensing technology in it. So you can add things like that, that are just a brand-new vertical for us. That will also help us in that vertical I mentioned in the fire and has map. That's really as much as we did a couple of million dollars last year. It's a new vertical for us. So it's really based on different technologies. When you're looking at it now and mostly what we're doing is not developing a new product from the ground up, but adding some technology to the current products we have.

Great. And I think you actually answered this next question, but I'll ask it and you could address it. Is there an application? Or have you attempted to work with the military or defense customers?

There's lots of applications in military and defense. It's not been a target market for us yet, but it will be in the long run.

Is M&A part of your capital allocation strategy and how will cash be used once Blackline becomes cash flow positive?

Yes. I mean in the short to midterm, M&A is not something that's a focus for us. If we look further down the line as we're generating cash and we have more opportunities to broaden it, if there's opportunities there, it will be around the software services side so looking at M&A in the context of something that might add value a new software layer, a new service layer to the devices to the value prop we provide in the field, but not something we're really looking at for the next year or 2 years.

Great. And can you offer a service plan that's independent of your devices? Or does it rely on a tight hardware software coupling?

That's an interesting question because that's one thing we've talked about internally here. So when you think about it, we have a safety operations center. We have trained people who are second to none and responding to emergencies in the field. And right now, we only monitor our own devices. There's a point in time when there's an ability to add other types of devices into that customers have already asked us to monitor some of their fleet tracking devices, monitor for thefts, other kinds of things like that. But I mean the core -- so there's a potential ability to take again what we've built in something like that safety operations center and leverage more value out of it to a customer by adding more inputs to our APIs, but the core value prop is still going to be being attached to one of our devices.

As hardware revenue grows, at what rate does service revenue growth? Does the company have an anticipated multiple that you strive for?

Yes. That's -- again, if you looked at that model we were talking before about $600 of hardware drives a 5-year number of around $2,200 worth of services. Our real goal is you look at -- when you look at the next few years, as you see the new products the company is bringing out the new services, it's not so much impact the hardware price, like the hardware price is relatively fixed in the market. It's really to expand the value proposition we can do on the services side. So right now, we look to try to generate -- again, those are the kind of numbers we look to try to generate with one of our portable devices. But what we're really focused on is adding services that allow us to maybe make that $2,100 $3,000 or $3,400. And there are certain segments where we get more when we know, say, for satellite monitoring someone to satellite, there's other verticals that are technology specific that have a bigger dollar attach rate to them. But what we're looking at doing is making a bigger potential attach rate across our entire fleet of products.

Can you add some color on your recent press release regarding becoming an AWS partner? What does that mean for the company and how can we monetize for future revenue growth?

Yes. That's an interesting question because the AWS partner, that level of certification from AWS means they've gone through your software stack. They -- they've looked at how you operate your systems, the functionality, and it meets their standard, which is really the highest standard you can have. So it's really a sales -- well, it's a tribute to the team that runs our software. That's a really hard thing to get and acquire. But it's a real sale advantage when you're talking from a sales standpoint, when you're going into large multinational customers, and they're talking about data security, safety, all these things, that certification is really a sales tool for us.

Is there a more effective way for customers to understand the strength of your services, including industry-oriented communications from a third party?

Yes, is a short answer to that. I think that we do see that somewhat through what we talked about before, some of the different awards. We tend to do a lot of this with joint webcast with some of the safety organizations, those kinds of things, but that's sort of us driving that. But you will see -- I think now that there's a scale to this, you'll see more and more of those industry-based organizations talking about connectivity, talking about the value of those kinds of things. But it's not something we can drive. We can help. We can guide some of that. But it is those third-party voices. The third-party voices that we talked about in that one slide really do add value when we talk to a customer.

And I think this next question is for Shane. Can you please explain how a lease device flows through your profit and loss, cash flow statement versus a purchase device?

Sure. Thank you. So from the lease perspective and Cody outlined that program works from a P&L perspective, from the product element side of that, that operates almost like [indiscernible] outright product sales. So each quarter for those leases that are recognized in the period, we take that product equivalent into our hardware revenue to services and then realized over the life of device. From a P&L perspective, it's not largely different, except there's also an interest element that the customer is paying as part their offering. From a cash inflows perspective, we received $148 million of that each month coming into Blackline. Cody alluded earlier to the securitization time that we put in place on a working capital management point of view. So if you look at our cash flow statement over the last year, you have seen at the end of fiscal 2023 $11.5 million coming through that securitization program sort of funding lock of funding of the hardware equivalent for those devices. And that's a program we're looking to continue to utilize such that we're normalizing our cash inflows from a purchase decision. So regardless of if the customer purchased devices outright or if they purchase to the lease program, the effect on our working capital is largely neutral.

Great. I think this is probably for you as well. How comfortable are you with your current cash position and associated burn? Are there any needs to raise capital in the next 12 months?

So each component of that from a cash burn perspective, that's something that we've looked to improve quarter-on-quarter as we've gone through the last fiscal period. So that's working on our general working capital, but also utilizing 2 particular debt facilities. One is that securitization program that I've just mentioned. We also have an expanded operating facility, one of the Canadian banks here. So that at the end of October, it was $25 million. We draw down $8.5 million on that facility. So there's lots of one way left on that. And similarly on securitization line, we had $11.5 million taken in on that. There's over $50-plus million on that facility. So both of those 2 elements from the debt side of things, improving our working capital management are such that we don't see ourselves in the short term horizon top in the equity markets for capital.

Perfect. I'm just doing a time check. I noticed we're a couple of minutes under the hour. We probably have got another half a dozen to a dozen questions that we could still address. We'll go beyond that unless you guys have a hard stop. And to our audience, if you have to drop off, remember, this is being recorded, and I'm going to send everybody a recording of this presentation, including the first minute where you may have missed my opening statements. So next question for you, likely Cody, is it's related to pricing. So first, can you talk about the differences in pricing and how you compare to your competitors?

Sure. We -- our pricing model tends to be that our hardware price point is relatively similar to our competition. So if you think about our portable handheld they're pretty similar in price to a competitor or big area monitors quite exactly the biggest competitor's price point. The services are an additional layer on top of that. So you can look at it and say we're a more expensive option in that context because we have that service portion. But keep in mind that service portion reduces their operating costs. The first tranche of that service is getting rid of that manual process of compliance of my gas detection fleet. And then each of those services above, it's really up to the customer and decide what does being able to talk to my personnel in the field means to me, how much value that bringing to. So realistically, we would say we win both customers who are looking at price point purely like some of those broader waste matters. The first one of those we won in new Europe. I think 80% of that RFP was based on costs, and we won that one. But you do have to explain to the customer. [indiscernible] customer that understands what their real cost of operating semis.

Next question is related to that. So can you talk about how your customers reacted to price increases you've implemented over the last couple of years? And then can you walk us through when you expect to generate earnings, again, I know that's, I guess, a guidance type question. including free cash flow is 30% top line CAGR realistic over the next 5 years, assuming you reach positive free cash flow earnings.

Sure. If you look at the growth going forward, again, you're right, we don't give a forward number of that, but the analyst expectations are in that 28%, 30% growth numbers. And we see that as a -- there's plenty of market and plenty of opportunity, particularly the new products we're putting down the pipeline, the maturity of our space in the market right now to see that continue for multiple years and generating that positive return as that goes forward and flips into profitability. From a business standpoint, looking for the next year, one thing to keep in mind, our services continually grow our hardware quarter-on-quarter, year-on-year. It always has not growth, but we do have some cyclicality to our hardware sales. So our sales ramp up to Q4, Q1 being Christmas, all kinds of other things in November, December, January is a drop from Q4, but growth from Q1 before. So when you're looking at that transition EBITDA positive, we have said market that's going to happen this year, but it will happen in the latter half of the year.

This question is, I guess, topical. Is there an AI component to your business or fit your business? And how do you see that playing out over the next few years?

Yes. There definitely is. We -- one of the things we don't talk a lot about is the devices that we have generated data all the time. The personal data company name individual name. Those things are owned by the company, but everything else is owned by Blackline. So we have data lakes that have 250 billion points of data in on what industrial workers do on their job site every day. Now we leverage that data with different kinds of things through what we call our vision team and provide value proposition to customers. But the introduction of AI, there's lots of elements. Our first work with AI is really around making some of the services side, some of the interaction with customers, more seamless and get more value into some of that data. But long term, there's real data, real value and just integrating AI with that data side. We just -- we don't like to turn it out to the market AI, but it will be part of our business going forward. Like for sure, it will be part of how we monetize that data and how we add value to customers.

Just a couple more questions here for you. How much of your business is in developing in emerging economies, are standards around the world rising to create more of an opening for you there?

Yes. The rest of that sort of market space, maybe 8%, 10% kind of thing really 8% or so would be a good number for we want to talk to the developing world. I've said that are getting -- it's not so much partially the standards, but it's more of the international companies themselves. Like if you look at Dow Chemical, their plants are operated the same around the globe. So it's really getting into those large enterprise-based customers and then seeing that moving up through their channels and their opportunities I think some of the things we're seeing, though, is really around that workforce value proposition, workforce efficiency, those kinds of things. So we're seeing some real strong interest in some nontraditional safety markets based on that combination of safety and value prop that I can better understand how my workforce functions. So it's certainly a trend. Like it's not going to be the core driver of our business, but it's a trend you see across the globe, right?

Has the company considered a U.S. up listing?

It's something we've considered. We don't think the timing is quite right now, but it is something that we're certainly looking at for the future.

Great. And I think this is the last question. Then maybe a couple of other questions in the queue, but I think you've addressed them. So as you return to positive adjusted EBITDA this year and then in the near term with better visibility on the path to sustained profitability. How do you view, I guess, the use of cash, NCIB, dividends, sort of, I guess, what's your capital strategy over the next 2 to 3 years?

Yes. Looking for the next 2 to 3 years, certainly, we're not looking at -- we think we have better things to do with our cash than dividends to be -- it's maybe not a popular thing to say that you'd like to say you're putting out your dividend base. But I think from our standpoint, it will be a balance of looking at are there things we can do to deploy capital for more growth. And really, once that number starts to generate up and be strong enough, it really will be looking at acquisitions. I think that's the core value we can bring both to our customers and to our shareholders by increasing the potential long-term profitability and growth of the company.

Perfect. Again, to your audience, if you asked the question, you felt it didn't get addressed simply e-mail me [email protected], and I'll get you that answer. Once again, thanks for joining us. Shane, Cody, Sean, I'll let you give some closing remarks, and then we'll end the presentation.

Yes, again, thanks very much, everybody, for attending today. And if there's follow-up questions to Glen, that's great, we'll always fill out with one last thing, which is if anybody ever happens to be in Calgary, Alberta, Canada, our main manufacturing facilities here, our core operations. It's a great way to see and understand the sort of the culture of the company and the deal and the buy and the direction. As far as the business itself, I'd just say watch this space. This is going to be a really exciting couple of years for us.

Perfect. Thank you very much, Cody. Thanks, guys. Thanks to our audience, and this concludes this presentation.100%