- Hardware and service pricing increase coupled with cost
reductions to improve Blackline’s cash generating capabilities
Blackline Safety Corp. (TSX: BLN), a global leader in connected
safety technology, today provided a business update announcing a
pricing increase on its hardware and services along with cost
reductions that are collectively expected to significantly enhance
Blackline’s financial strength and ensure long-term stability.
“As we discussed in our fiscal second quarter 2022 earnings
release and conference call, we are taking proactive measures to
further improve our top-line performance while also having lowered
operating costs to further strengthen the financial performance of
our business,” said Cody Slater, CEO and Chair of Blackline Safety.
“An increased emphasis on the financial durability of Blackline is
paramount in an uncertain world and we are confident that these
measures will allow us to operate in a position of strength while
still allowing us to continue executing on our strong growth
opportunities in the connected industrial worker market, where we
have expanded revenue at a compound annual rate of 48% over the
last five years.
“While we expect our fiscal third quarter cash burn to remain
elevated as we flow through these margin enhancements and cost
reductions, these actions, when applied to our trailing
twelve-month revenues would have collectively allowed us to capture
upwards of $20 million of incremental cash flow. With continued top
line growth, the impact to these changes will be even more
significant in the coming year. These actions make us a stronger
and more competitive company while putting us on an accelerated
path to generating free cash flow.”
Hardware and Software Pricing Increase
Blackline is implementing an approximate 15% pricing increase in
both hardware and services. This will represent the first pricing
increase on the G7 since its launch five years ago and the first
service pricing increase in five years. The Company has been in
communication with customers regarding the pricing increase and
given global inflation and similar pricing increases from
competitors, Blackline is confident the pricing increase will not
impact its competitive positioning.
The hardware pricing increase will take immediate effect on any
sales beginning August 15, 2022 in North America and Rest of World,
and September 15, 2022 in Europe, providing an expected
step-function improvement in gross margin and cash generation.
While the service pricing increase will also take effect that same
day for all new customers entering into service contracts, this
price increase will also flow through to existing customers as they
renew their contracts.
For context, a 15% hardware pricing increase applied to trailing
twelve-month product revenue would have driven product revenue from
$31.6 million to $36.3 million and gross margin percentage from 18%
to 29%, equating to a $4.7 million improvement in gross margin. Any
future relief in global supply chain challenges would represent
additional upside to product gross margins and profit. Similarly, a
15% service pricing increase applied to all trailing twelve-month
service revenue would expand service revenue from $32.7 million to
$37.6 million and gross margin percentage from 69% to 73% with a
$4.9 million improvement in gross margin. Note, these calculations
assume no other changes outside of the pricing increase and are
presented only as an illustrative example.
Cost Reductions
As discussed in the Company’s fiscal second quarter 2022
earnings release, operating expenses in the fiscal fourth quarter
of 2022 are expected to be at or below the fiscal second quarter
2022 level of $21.5 million. Part of the cost savings is being
driven by a workforce reduction that was implemented during the
fiscal third quarter of 2022 following a review of Blackline’s
organizational structure, which resulted in opportunities for
greater efficiency and lower costs without impacting growth. The
major impact of the workforce reduction will be the delay of the
launch of G5. These measures allow Blackline to conserve liquidity
and maximize resources towards products and services expected to
deliver near-term revenue including the upcoming launch of the G6
in October. Additionally, the Company has been actively reducing
operating costs related to consultants, contractors, recruitment
and other business expenses. The impact of these changes will be
seen in the Company’s fiscal fourth quarter 2022. Collectively,
these reductions put Blackline on track to surpass its initial goal
with more than $10 million of annualized savings compared to Q2’s
operating costs. Note that Blackline expects to record severance
and redundancy costs of over $0.6 million in the fiscal third
quarter 2022 due to these reductions.
Inventory Management
Blackline has been significantly increasing inventory the last
several quarters above historical trend levels as a proactive
strategy in light of ongoing global supply chain challenges and to
build sufficient inventory for the upcoming launch of the G6.
Blackline’s historical strategy of maintaining inventory to meet
next day fulfilment of any possible customer order has been a
competitive differentiator as the Company established itself in the
market. While this strategy was beneficial in the early stages of
growth, it was also a significant driver of material costs and
inventory levels. This led to the Company carrying higher levels of
inventory including growth of $7 million in the past year, a trend
which continued into Q3 2022. In today’s challenging supply chain
market, Blackline is now targeting order fulfilment within 30 days
which allows the Company to maintain its customer service advantage
while reducing inventory carrying costs. These measures, along with
the launch of the G6, will allow the Company to transition from
having inventory as a significant use of cash to a source of cash
as it achieves more efficient inventory turnover.
Blackline Lease Model
Blackline provides the option for customers to purchase outright
its devices or to lease through its G7 lease program. Blackline has
seen an acceleration of adoption of its lease program this fiscal
year with finance leases at April 30, 2022, totalling $23.1
million, up from $16.3 million at October 31, 2021. This
acceleration has continued in fiscal Q3 2022 driven by the recovery
in the oil & gas markets, which traditionally favour this
model--as seen in the Company’s August 2 announcement.
Blackline views the lease model as an attractive offering for
its customers as it provides strong retention and healthy margins
to the Company. However, there is a significant impact to cash flow
with a lease generally taking 1.5-2 years for the cash flow to
breakeven with a standard purchase of hardware and services where
initial payment is made up front. In addition to margin
improvements associated with the previously mentioned pricing
increase, the Company will be raising the interest rates implicit
in its lease agreements in response to the current interest rate
environment and to help offset the cash flow impact.
About Blackline Safety
Blackline Safety is a technology leader driving innovation in
the industrial workforce through IoT. With connected safety devices
and predictive analytics, Blackline enables companies to drive
towards zero safety incidents and improved operational performance.
Blackline provides wearable devices, personal and area gas
monitoring, cloud-connected software and data analytics to meet
demanding safety challenges and enhance overall productivity for
organizations with coverage in more than 100 countries. Armed with
cellular and satellite connectivity, Blackline provides a lifeline
to tens of thousands of people, having reported over 185 billion
data-points and initiated over five million emergency responses.
For more information, visit BlacklineSafety.com and connect with us
on Facebook, Twitter, LinkedIn and Instagram.
Advisory Regarding Forward-Looking Statements
In the interest of providing Blackline's shareholders and
potential investors with information regarding Blackline, including
management's assessment of Blackline's future plans and operations,
certain statements in this press release are "forward-looking
statements" within the meaning of applicable Canadian securities
legislation. In some cases, forward-looking statements can be
identified by terminology such as "anticipate", "believe",
"continue", "could", "estimate", "expect", "forecast", "intend",
"may", "objective", "ongoing", "outlook", "potential", "project",
"plan", "should", "target", "would", "will" or similar words
suggesting future outcomes, events or performance. The
forward-looking statements contained in this press release speak
only as of the date thereof and are expressly qualified by this
cautionary statement. Specifically, this press release contains
forward-looking statements relating to: actions that are expected
to materially enhance Blackline’s financial strength and ensure
long-term stability; Blackline's expectation that its fiscal third
quarter cash burn will remain elevated and that through revenue
enhancements and cost reductions, Blackline may capture upwards of
$20 million of incremental cash flow when looking at its trailing
revenue with no benefit to future growth; that Blackline will
implement an approximate 15% pricing increase in both hardware and
services; Blackline's assessment that pricing increases will not
impact its competitive positioning; the effects of any price
increases on Blackline's trailing twelve-month product revenue and
gross margins; Blackline's expectation on operating expenses for
the fourth quarter of 2022; Blackline's estimate of annual costs
savings and severance costs as a result of certain past and planned
corporate actions; Blackline targeting order fulfilment within 30
days which, along with the launch of the G6, is expected to allow
the Company to transition from having inventory as a significant
use of cash to a source of cash as it achieves improved inventory
turnover; our business strategies and other plans and objectives.
In addition, information and statements relating to reserves are
deemed to be forward-looking statements, as they involve implied
assessment, based on certain estimates and assumptions, that the
reserves described exist in quantities predicted or estimated, and
that the reserves can be profitably produced in the future.
These forward-looking statements are based on certain key
assumptions regarding, among other things: planned product and
service price changes; estimated operating and other costs; capital
expenditure levels; the receipt, in a timely manner, of regulatory
and other required approvals for our operating activities; the
availability and cost of labour and other industry services; the
availability and cost of financing and our ability to access
capital; the effects of inflation and supply chain; interest and
foreign exchange rates; the continuance of existing and, in certain
circumstances, proposed tax regimes; and current industry
conditions, laws and regulations continuing in effect (or, where
changes are proposed, such changes being adopted as anticipated).
The reader is cautioned that such assumptions, although considered
reasonable by Blackline at the time of preparation, may prove to be
incorrect.
Actual results achieved during the forecast period will vary
from the information provided herein as a result of numerous known
and unknown risks and uncertainties and other factors. Such factors
include, but are not limited to: inflation and cost increases and
distribution of supply chains; variations in interest rates and
foreign exchange rates; access to external sources of capital;
increases in operating costs; changes in government regulations
that affect our industry; changes in income tax or other laws or
government incentive programs; changes in environmental, health and
safety regulations; competition in the technology and safety
industry for, among other things, skilled personnel and related
materials, equipment and services; or key personnel and information
systems; risks associated with the ownership of our securities,
including changes in market-based factors; and other factors, many
of which are beyond the control of Blackline.
The above summary of assumptions and risks related to
forward-looking statements in this press release has been provided
in order to provide shareholders and potential investors with a
more complete perspective on Blackline's current and future
operations and such information may not be appropriate for other
purposes. There is no representation by Blackline that actual
results achieved during the forecast period will be the same in
whole or in part as those forecast and Blackline does not undertake
any obligation to update publicly or to revise any of the included
forward-looking statements, whether as a result of new information,
future events or otherwise, except as may be required by applicable
securities law.
This press release also contains future-oriented financial
information and financial outlook information (collectively,
"FOFI") about Blackline's prospective results of operations
including, without limitation, expectations with respect to future
cash flows, which are subject to the same assumptions, risk
factors, limitations, and qualifications as set forth above.
Readers are cautioned that the assumptions used in the preparation
of such information, although considered reasonable at the time of
preparation, may prove to be imprecise and, as such, undue reliance
should not be placed on FOFI. Blacklines actual results,
performance or achievement could differ materially from those
expressed in, or implied by, these FOFI, or if any of them do so,
what benefits Blackline will derive therefrom. Blackline has
included the FOFI in order to provide readers with a more complete
perspective on Blacklines future operations and such information
may not be appropriate for other purposes.
In addition to the foregoing, any references herein to trailing
twelve-month figures are based on the Company's financial results
for the twelve month period ended April 30, 2022, as if the changes
to the pricing for the Company's products and services described
herein had been implemented at the beginning of such twelve-month
period.
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version on businesswire.com: https://www.businesswire.com/news/home/20220808005177/en/
INVESTOR/ANALYST CONTACT Matt Glover and Jeff Grampp, CFA
investors@blacklinesafety.com Telephone: +1 949 574 3860
MEDIA CONTACT Christine Gillies, CMO
cgillies@blacklinesafety.com Telephone: +1 403 629 9434
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