Status update

Feb 22, 2024

I mentioned the forward-looking statements. They're a little bit of an eye chart there, you've all seen those before. Every company has that. I really wanna start off here with the purpose and vision of the company. I think this is something you hear from all kinds of companies, and often they're really just words. 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. When you think about a wearable device, this is something that's transmitting data all the time. We're allowing customers and companies to understand better everything their workforce is doing on a daily basis, the background environments in their 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 through 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. Particularly in this industrial space, that we're one of those companies that's able to grow top line and, you know, 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. 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, that HE SaaS business model is a really impressive business model, I think, especially if you have the right, you know, metrics behind it. We have a 100% attach rate. Every device we sell has a service plan attached to it. We'll talk about the Net Dollar Retention, the key element for a software-based company of 129%, something, you know, truly industry-leading. I mentioned when 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 the 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. 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 worker's in, they monitor for falls, they can do all kinds of other things as well, which we'll touch on. We provide 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. Right up to that top level, we call it the personal 911, our safety operations center. We monitor about 45,000-50,000 people through that directly, and that's where we are actually the ones instituting the emergency response, calling 911 or 999 in Europe or directing local responders and making sure that the outcome has changed for that worker in that workplace incident. I said, you know, again, when you're looking at this market, companies need a 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. If everything isn't communicating into this portal, there's little value in just one device or another. Because every one of these large customers has single gas devices, multi-gas devices, four-gas devices, pumped instruments, unpumped instruments, area monitors. We do everything. 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 won tons of awards for growth, for all kinds of things as a business. These are awards from industry-based organizations, occupational health and safety, L'Innovation in... by Préventica in France. These are industry-based recognized organizations that say Blackline's products are the best in the world. We've 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 a 100% attach rate. Every device we sell is connected. Every device starts with what we call a base service plan. 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. Then you just layer on additional services, real-time visibility, real-time management of alerts, 24-hour safety, 7 safety monitoring. We can add two-way voice to devices. We can turn them into walkie-talkies, make them a push-to-talk like device. All those additional service levels help drive that Net Dollar Retention, 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 a daily basis. They get replaced about once every 5 years. That generates that $1.4 billion marketplace. That's a Frost & Sullivan number. Every one of our competitors, that's all they sell. They sell into that marketplace. If you think about, you know, our model, where every device can have a service plan attached to it and have, you know, that additional SaaS side to it, that adds $1.75 billion to that market. That portion of that market is something we can expand. The more services we add, the bigger that market gets, the bigger the opportunity gets. 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. 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 CAD 600. That's around when we generate a 32% gross margin on that. We do see that moving up to about 40%. You know, around a CAD 200 hardware margin on a sale for a device. If you think about that 5-year device life, that generates CAD 2,200 worth of service revenue over that device. And again, more services added, the higher volume, the higher number that gets to. You look at that 77% gross margin, that generates, you know, almost 8 times the margin over that 5-year life cycle than the hardware does. Key to think about this is we talk about this as 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. You can see that in our logo retention. We've never lost a customer. Our Net Dollar Retention is 130% or 129%. That just really shows the value customers see in what we do. I touched on the competition and, you know, it's absolutely 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, you know, brand recognition in the marketplace. They're, you know, both ISC and MSA are U.S.-based competitors. The yellow products you see there under Honeywell, that's my old business, BW Technologies, still probably about the largest supplier of gas detection in the world. Then we've got companies we compete with in Europe, Dräger, Crowcon, all good companies, but none of them have the value prop we do. They're starting down this path. Mine Safety Appliances has brought out 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. They've also brought it out with a way lower value proposition. There's no two-way voice on the device. I can't call a worker in the field. I can't use it like a walkie-talkie. If I can't call the worker, I can't instigate that emergency response. You know, 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 U.S., there's the world's largest safety show, the National Safety Council, National Safety Congress, I should say. One thing we do is every year we invite our analysts to come to that show. We have about nine analysts that cover the company, and they all 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 this show because it allows them to see for themselves. They can wander around and see every one of our competitors putting on their best face to the customers and to the market. 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, you know, what that difference means. You know, you can talk about growth and all these things, and when you're, you know, at the beginning, we started with the G7, we were doing CAD 11 million a year. You can be growing at 50%, 60%, 70%. It's still pretty meaningless. You know, we were basically 10% of what our largest competitor, MSA. If you look at it, 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've basically grown 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 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, both are down. You know, you can infer different numbers. Both are down somewhat, I'm thinking, their 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. It really just shows that the market acceptance of what we're doing. I touched on the safety and one of the reasons for that market acceptance. I 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 competing products. This is a worker who is working in the oil and gas space. They were exposed to hydrogen sulfide, H2S, in a high level. It'll knock you out, you're paralyzed, and you only have so much time to rescue that individual. Every other device in the world will just beep and flash. It tells me I'm 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 direct a nearby responder, a coworker, tell them to suit up properly. They get in, get Nick out. Really, again, because that company was using our products, Nick is going home to his family again today. That really helps understand, like when you look at this logo set, this is one of the core drivers of why companies adopt us. You know, 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 people will think this is a Canadian-based, Calgary-based company that does industrial safety. It must be an oil and gas supply company. You know, oil and gas or energy as a broad market, including renewables, is a great market for us, that's something that's constantly growing for us. You know, utilities, Yorkshire Water, Welsh Water, this is water, wastewater in Europe, massive organizations that do exactly what you think. They supply your water, treat your water. We've won 6 of those. There's been 6 RFPs let in that industry over the last 4 years. We've won every single one. BAE Systems manufactures nuclear submarines. With Amazon, it's refrigeration. Refrigeration is ammonia. Ammonia can kill you. We monitor all the Amazon workers who deal with refrigeration. FedEx 6 wing tank entries. That admits their 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. 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. You know, 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's a coworker, drive that coworker there. You can hear this. It's all recorded in our operating systems. They're screaming, "Call 911." When the responders got there, they said if this was another ten minutes later, the worker would not have survived that incident. It really just helps drive, you know, underlying some of the reasons why we're succeeding against our competition in the market. 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. I think it's interesting to look. The red line here is hardware, gray line is services. That dip in our hardware growth, that was COVID. You know, it's a point in time, especially with a new technology. You can't do field trials, you can't do onboarding on a site. You know, it was very challenging for us to maintain the momentum and growth on the hardware during that time. The growth of 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 five, six years ago, that's really what we were. You know, the biggest market for us was Canada. The biggest market was energy. Today, the United States is our single largest market. Europe's growing, and, you know, continuing to move forward. Same with that rest of the world segments. You know, 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, 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. You can see the strength of that over the last year and a half, couple of years, going from, you know, CAD 27 million to over CAD 50 million, 40% growth over the last year, and just continuing to see that move forward. Really, you know, I love seeing this because this really, to me, speaks about the value our customers see in our products and our services. You know, 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 year and a half. Like a lot of tech companies, we're really purely growth-focused as we're building ourselves into the market. Now you're seeing the business model start to shift to more maturity. In the last year and a half since we moved down that path, you've seen our revenue double, but really, you've seen the gross profit move almost to treble 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. Services, similar sort of a story. There's been price increases. Those take longer to flow through in the service world because it's about a, you know, we have customers who have two-, three-, four-year service contracts, but you've seen that move from 68%-77%. Our targets long term are, you know, around 80% on that services side and around 40% on the hardware side. You know, all driving that strength going forward. I always like. You know, mostly I like showing charts that are doing this. This is a great chart to show going the opposite direction. This is our operating costs. 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 know, you've seen our research and development as we were doing a lot of the heavy lifting into the software side, et cetera, hitting 40%. We're now down, you know, sub-15%. G&A moved from 37%-19% and sales and marketing from 57%-37%. If you look forward in the next year or two. You'll see the G&A and the research and development be relatively stable numbers, like around CAD 4 million in research and development, around CAD 6 million in the G&A side. You know, the inflationary increases, but nothing significant as the revenue continues to grow. You'll see that service line come down into the, you know, mid-20s% as a target going forward a bit. All that's driven a dramatic change in our Adjusted EBITDA. You know, going back a year and a half ago, we were 70% negative on our Adjusted EBITDA, you know, true growth company. Now we're just, we were a tiny bit negative in our last quarter. You'll see the company shift in, the latter half of 2024, into EBITDA positive. You know, you can just see the trend, and it's really, you know, driven by everything we were just talking about in the past there. Just looking at a snapshot, our year-ends are October 31, a little bit of a strange year-end. We just announced a little while ago our 2024 numbers, our Q4 number. You know, 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 reining in our OPEX cost down 3%. That all, you know, results in that 76% improvement in the adjusted EBITDA. Looking at the full year, really similar story, just some different metrics to look at, you know, 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 been nice to see that services growing even more rapidly than the hardware, and that margin moving up 6%, driving that overall revenue to north of CAD 100 million, and a gross margin improvement of 9%. Really a key number to focus on is that recurring revenue at the end. You know, that CAD 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 that, our Vice Presidents level, our 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, Robin Kooyman, our Chief Financial Officer, Sean Stinson's our President and Chief Growth Officer. Sean comes from my old business, BW, back in the day, was a product manager, you know, has spent years in this industry, and really is one of those people, along with myself, I 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. 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 Cohenour, who ran a company in Canada here called Sierra Wireless. It became a billion-dollar company. Barbara is out of Microsoft, good strong strengths on legal and accounting. I mentioned Brad Gilewich. Brad is the representative of our single largest shareholder, that's DAK or the Katz Group out of Edmonton. That's Daryl Katz out of Edmonton's family fund. He's the gentleman who owns the Edmonton Oilers, one of the wealthiest gentlemen in Canada, and has about a 24% holding in the company. 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 CAD 4.40 today. I guess 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. They're 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 starts to recognize what we're really doing. You can see that recognition from the analysts that cover the company. We have nine analysts covering the company, and, you know, the ones that get it really, you know, really do get it and have that buy, outperform, et cetera, and, you know, understand that this is something that's going to keep driving for a period of time. I'll just 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. CAD 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 there. We sell our products in one of two 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 four-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 CAD 350 million-CAD 400 million revenue number. At those numbers, when you look at the mix between service and hardware, we will be generating around a 30% EBITDA. 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 that balance between revenue growth and earnings. You know, and to be clear, you know, that's your revenue growth plus your EBITDA needs to be north of 40%. My own view, a company growing at 60%, losing 18% EBITDA is not a Rule of 40 company. That's not a sustainable business model. At the same time, a company growing, a 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. That's really where Blackline is. We're in the position now as a mature company showing that business model success, showing 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. With that, I'll end the presentation. Probably, I'm sure, Glen ran a minute or two over, but, we'll open it up for questions at this point. Perfect. Thank you very much, Cody. We do have quite a few questions in the queue already. Again, to our audience, if you do have a question, please use the question and answer little box down at the bottom to ask that question. Your first question, Cody, is, 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? There's a lot of elements to that. It's a good question because it is something that isn't one single piece in this when you're trying to say we wanna continue to drive growth, but you wanna 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. I'd say it's the scale of the model as well too. Every portion of the company, the. One thing we do as a business, we always set aggressive goals and targets. Our goal was into the black. Every single individual in the company would talk to you about that, whether they worked in our production line, whether they're in our sales force. It's increasing prices, managing, you know, product development base. Everything put us into that position where you could drive both top and bottom line. Okay. Thank you. 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? Just to be clear, 50,000 are the ones that we actually adopt our, what I call our safety operation 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. You know, you saw the company, you know, within 4, 5% of profitability in the last quarter. You know, a 10%, 20% increase in that, and you're starting to shift over into profitability numbers. Okay. Thank you. How much is the company currently spending on R&D, and how do they expect that trend to continue in the coming years? Right now, you're seeing a slightly lower number in Q4, but there are just some different elements in that. Call it around CAD 4 million a quarter. The way I look at research and development, an 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 wanna be on. We wanna launch 1 new major product a year. If we're doing more than that, you know, you're over, you're flooding the sales channels. You're confusing, you're competing with yourself, frankly, at the end of the day. We really see that being a pretty stable number. Yes, there'll be inflationary growth within that, but nothing significant. Again, for the next few years, that will generate that ability to put into field 1 new major product every year. Yeah. Thank you. 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 12-24 months? Yeah, for us, we're always looking at new products, and there really is key different elements. One aspect is looking at getting into new verticals. In 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. It monitors that for a period of time. In our case, we run for 100 days on our battery. Our competitor is mostly a week. We're adding, as an example, radiation to that device. Radiation's an interesting separate vertical. We don't sell in that market now. We're adding an APAP version that's again more of an emergency response, hazmat world. 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 per device. It's really based around the solid knowledge of the market and what that customer is looking for. Okay. Thank you. 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 specifications similar to Blackline's? You know, for sure. The market is like, you know, we, if we're doing CAD 200 million a year in hardware like some of our competitors are, you know, our service would probably be triple that. You're a massive, you know. There's lots of opportunity in this market, you know, 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, being MSA, launch a truly connected product. It's got a SIM card in it's mobile, direct to cloud, but a very small, very limited subset of what services they can provide. 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 in mind with our competition too is they're mostly diversified large companies. They're divisions of a diversified large company. You know, if you look at MSA, you know, they multi-billion-dollar company with a couple hundred million in portable gas detection. You look at Industrial Scientific, they're owned by Fortive, you know, 10 billion-dollar, 12 billion-dollar company with $200 million in gas detection. One of the things that is advantage for us is we just do have that unique focus on the marketplace. Yeah. Thank you. 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 derive service revenue from every hardware product sold? i.e., are there customers that for any reason want 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? Good question. You're right, Glenn. Every product we sell has a service plan attached to it. We don't want, you know, 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? Every one of our competitors, they need to take that device back, download the information that's in it, try to figure out that out with work schedules. 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 dependent on the value proposition you're looking at. You know, just taking it back to 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. Really that's the way the whole market's moving. Yeah. Perfect. Thank you. When looking at the current markets you service, are there opportunities beyond industrial, transport, energy, and consumer? If so, how relevant is it for you to look at customer acquisition in new markets? I mean, just take a quick example of a couple things. Fire and hazmat, that's been a new entry point for us this last year and a half or so. It's really been something. We have a lot of products that work great for that marketplace. It's really been about tuning our marketing to it. You sell differently to a fire station than you do to a chemical plant. It's a different needs requirement, different pitch. We've had a good focus on that. Our growth in that has been from sort of nothing to CAD 2 million this last year. You'll see that continue to grow as we add more value and more new products in that. What we look at is the applications where it's a truly, you know, it is a hazardous location. It's a difficult work site. Typically, they're industrial, and that can be broad to anything where I'm needing something that meets requirements that are called Intrinsically Safe, so that I can't take a mobile phone onto the sites we normally deal with. I can't take my, in fact, I can't take my Apple Watch onto a site we normally deal with. Yeah, you know, focus on heavy industries and industries that have that real value prop. Okay. Thank you. Do your margins differ materially geographically or from segment to segment, like between industrials and consumer? You know, again, our customer base is, you know, if you look at it moving from say, you can call an Amazon a consumer-based product customer and, you know, BAE Systems and Industrial, margins are basically the same across the board. The product is the same. The adoption of services vary 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 the two-way voice? Those kinds of things are really more what drive a differentiation in the service margin, but the hardware margin's the same across the board. Great. Thanks. Again, regarding competition, I think you've answered part of this question, but there is a part that you can 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? We're always competing with multiple companies, and I think you have to think about it, we're competing first with the incumbent. Basically, every device we sell, we're replacing something. It's the replacement cycle when, you know, a plant is at that four-year, five-year time when whether they bought Industrial Scientific, MSA, Dräger, they need to go out and buy new hardware. The first thing you're competing with is the incumbent supplier. And then when you have the same value prop, I think like if you look at it from the context of our competitors, they basically, mostly customers just re-adopt the same product because it's easier. I mean, one gas detector is about the same as the other. They work, they're about the same. They cost about the same. Not a lot of reason to shift. We're the ones giving them a reason to shift. Our competitors will be in there. If that's a, you know, if that's a Dräger customer, MSA will be trying to sell them, ISC will be trying to sell them, but we're the only one walking in with something different. Okay. Is a lot of education required? In other words, do you need to convince decision-makers why this is effective and necessary, or do you just need to convince decision-makers that your product is the best option? You know, less and less. Like if you go back when we launched the product, it's something nobody's ever seen before. Connected gas detector, all these different elements. You know, people I think intrinsically understood there's a 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, you know, they're the ones asking us the right questions, and that's my path to push it forward. It's been a real state change over the last few years. Okay. Thank you. Can you discuss what happens at the end of the five-year hardware cycle for a G7 device? Can the customer keep using the device without continuing to pay for the software? No, the end of the device is really the end of the life of the device. The device life is really, we say 5 years. It's really determined by the use case in the field. You know, 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 of the life of the device. If the customer decides, you know, the key on the service side is that without paying that service contract, the device doesn't function. So even if they, you know, if they wanted to try to get more use out of it, but it just becomes problematic at that cycle. It's something customers are so used to. They in the gas detection world, it's been decades whereas companies repurchase their hardware every 4 to 5 years. The difference for us is that, you know, the one thing I'll say, 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 know, how do you remove all that? It's not just changing out a piece of hardware anymore. Okay, great. I'm gonna 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? The first competitor that started to emulate us is MSA Safety. They brought out a product called the ALTAIR io 4, which is their first. It's a four-gas connected gas detector. I think I mentioned before, it does a lot of what ours does, but also does not do a lot of what ours does. I can get visibility of 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 worker and 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. What we can provide is very different than them. This is their first entry point. You know, they're starting down the path. MSA is a good company. They make good product. They'll fix the problems they've made with their initial launch, and they'll have to launch another product in a pumped instrument, a multi, a five-gas instrument, a single-gas instrument, an area monitor. I do believe MSA is one of those companies that's going to go down that path. I think our competitor in Industrial Scientific is going to go down that path, but it takes time. It's just there's a big tech stack to do what we do. Okay. Thank you. Can you comment on what the split is between your direct sales and partner or channel-driven sales? Direct sales, you know, is realistically two-thirds of what we do. You know, 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 focus. 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. Okay. When you sell your products, are you displacing an incumbent or are there greenfield wins still? If you displace somebody, who is it most often that you're displacing? Yeah, great question. If you look at it, the first sale into any customer is displacing one of our competitors. Really, it varies by where we are. In a lot of those water and wastewater in Europe, it's Crowcon was the dominant player or BW Technologies business. You know, it can be, it really does vary. But it is those top providers. 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. Our initial purchase by a company will be replacing that competitive product. What we see though in this greenfield is once the companies have a device that does what ours does, that has those added values, the easier compliance, the two-way voice, the visibility of workforce, what we've seen in every one of those customers is that they can, they expand the usage of the devices. Like in those water, wastewater, it's typically they're using typically 20, 30% more product than they used to just because it's, you know, it's a different product, has a different value prop. 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 greenfields. Like if you think about it in that respect, two-way voice on a gas detector, greenfield. You know, push-to-talk radio, greenfield. That, that's where I say that service side of our, you know, big donut there is the one that you can really see we can drive the growth from that. Yeah. Okay, great. What would you believe is the biggest constraint to your growth rate? You know, it's there's always a bunch of balance within that. Part of it is, you know, we are focused on that bottom line as well. You're not, you know, 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 in a market, we'll add another one. You could probably accelerate the growth by, you know, expanding that dramatically, but you can only do it so much. It really doesn't make a lot of business sense while 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 4-5 years. They've just spent half a million dollars, a million dollars on their hardware. There is that, you know, just the core construct of this market by that turnover of product means that there's, you know, a limitation to how quickly you can take the market share. As long as you have that retention, which we do, you know, you just keep taking more and more, and it just keeps driving that number forward. Okay, great. Thanks. 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 it 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? In the context of the funnel, I guess maybe I'll say You're right, Glenn, we don't give guidance, so don't wanna and directly state even 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 we'll comment on the analyst average expectation for this year is the company will move from about CAD 100 million to around, I think it's CAD 128 million. You know, our funnel supports that. You know, our funnel is definitely big enough to support that, as we go forward. So, you know, we see that as being, you know. I'll also say, when you talk about the sales cycle, if you went back to when we launched this product, a major customer was a CAD 100,000 order in the first place, and that was probably a two-year cycle. Today, a major customer is a CAD 1 million order, and it's probably you know, sub a year cycle right now. You know, 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. Thank you. Can you just 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? Okay. We'll try to tackle that. Rental is short term, typically 30, 60, 90 days. These would be a plant construction site, what's called a plant turnaround, where I've shut down portions of my facility to do maintenance. You know, these are temporary locations at the end of the day. 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 products under. And the lease is always, you know, more, you know, far more service than hardware. Lease customers tend to be pretty high adoption customers too. I think, you know, once you're only adding a few dollars a month to your lease, it's pretty easy to add those extra services. The lease is nice, you know, because it's a 4-year lease, non-cancelable, good strong retention, and we tend to get a higher service adoption within the lease. It's a bit vertical dependent. You know, some industries like it, some industries don't. The thing about the rental to keep in mind, rental is a segment that if you've watched our financials, it's moved from, you know, CAD 200,000 two years ago to CAD 2 million-CAD 5 million last year. You know, we see that continuing to grow into this year. That's nice. It's nice revenue, it's nice business, but it's new customer introduction. Like when I talked about those cycles of purchase of gas detection, there's a different cycle for things like a plant turnaround. It's typically every 2 years. Maybe that company's not buying for 3, 4 years. We get on the site, they get to see what our products do, understand the value prop. You know, it's really a sales channel for us. It generates business for us, new business for us, new customer introduction. Okay, thank you. 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? Yeah, I mean, it's really now, there's a nuance to it now, I would say. Like you look at, one of the next verticals we are entering is the gamma radiation market. So gamma is, you know, so we're talking about a radiation detector. It's really our EXO, our big area monitor with a new sensor technology put into it. It's dominated by a company called RAE Systems that's got, really it's a 20-year-old product, the AreaRAE. You know, if you think about it, if someone wants to compete with AreaRAE 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. It's really an emergency response market as well as a homeland defense market in the United States. They 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 poof, they can see all the data. We just don't have the right sensing technology in it. You can add things like that that are just a brand new vertical for us, that'll also help us in that vertical I mentioned in the fire and hazmat. That's really, you know, as much as we did $2 million last year, it's a new vertical for us. It's really based on different technologies when you're, you know, 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. Okay, great. I think you actually answered this next question, but I'll ask it and you can 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. Okay, thank you. Is M&A part of your capital allocation strategy, and how will cash be used once Blackline becomes cash flow positive? Yeah, I mean, in the short to mid-term, 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. 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, you know, year, two years. Well, great. Can you offer a service plan that's independent of your devices, or does it rely on a tight hardware-software coupling? Yeah, that's an interesting question because that's one thing we've talked about internally here. When you think about it, we have a safety operations center. We have trained people who are second to none in responding to emergencies in the field. Right now we only monitor our own devices. You know, there's a point in time when there's an ability to add other types of devices. Intradot customers have already asked us to monitor some of their fleet tracking devices, monitor for thefts, other kinds of things like that. I mean, the core. You know, 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 through our APIs. You know, the core value prop is still gonna be being attached to one of our devices. Okay. Thank you. As hardware revenue grows, at what rate does service revenue grow? Does the company have an anticipated multiple that you strive for? Yeah, that's again, if you look at that model we were talking before about CAD 600 of hardware drives a five-year number of around CAD 2,200 worth of services. Our real goal is, when you look at the next few years, as you see the new products the company is bringing out, the new services, it's to, you know, 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. You know, right now we look to try to generate, you know, again, those are the kind of numbers we look to try to generate with one of our portable devices. What we're really focused on is adding services that allow us to maybe make that CAD 2,200, CAD 3,000 or CAD 3,400. You know, there's certain segments where we get more, you know, when we, say for satellite, monitoring someone through satellite. There's other verticals that are, you know, technology-specific that have a bigger dollar attach rate to them. What we're looking at doing is making a bigger potential attach rate across our entire suite of products. Okay, great. Thank you. 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 the future revenue growth? It's an interesting question because the AWS partner, that level of certification from AWS means they've gone through your software stack. They've looked at how you operate your systems, the functionality, and it meets their standard, which is really, you know, the highest standard you can have. 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 sales 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. Okay. Thank you. 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, you know, we do see that somewhat to what we talked about before, some of the different awards. We tend to do a lot of this with, you know, joint webcasts with some of, with some of the safety organizations, those kinds of things. That's your sort of us driving that. You will see, I think, you know, 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. It's, you know, it's not something we can drive. You know, we can help, we can guide some of that, but it is those third-party voices. Those third-party voices that we talked about on that one slide really do add value when we talk to a customer. Okay, great. 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. From the lease perspective, Cody outlined earlier that, you know, how that program works. From a P&L perspective, from the product element side of that operates almost like you would an outright product sale. Each quarter, for those leases that are recognized in the period, we take that product equivalent into our hardware revenue. The services are then realized over the life of the 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 of their offering. From a cash inflows perspective, we receive, you know, 1/48th of that each month coming into Blackline. Cody alluded earlier to the securitization plan that we put in place from a working capital management point of view. If you look at our cash flow statement over the last year, you'll have seen at the end of fiscal 2023, CAD 11.5 million coming through that securitization program. There's funding, block funding, of the hardware equivalent for those devices. That's a program we're looking to continue to utilize, such that we're normalizing our cash inflows from a purchase decision. Regardless of if the customer purchased the device outright or if they purchased through the lease program, the effect on our working capital is largely neutral. Great. Thanks, Shane. I think this one's 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? Each component of that, from a cash burn perspective, that's something that we've looked to improve quarter-over-quarter as we've gone through the last fiscal period. That's working on our general working capital, but also utilizing two particular debt facilities. One is that securitization program that I've just mentioned. We also have an expanded operating facility with one of the Canadian banks here. That's at the end of October, it was CAD 25 million. We've drawn down CAD 8.5 million on that facility, so there's lots of runway left on that. Similarly, on the securitization line, we had CAD 11.5 million taken in on that. There's over CAD 50+ million left on that facility. Both of those two elements from the debt side of things, improving our working capital management are such that we don't see ourselves in the short term or. Top in the equity markets, for top of week. Perfect. Thanks. 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. To our audience, if you have to drop off, remember this is being recorded, and I'm gonna send everybody a recording of this presentation, including the first minute where you may have missed my opening statements. Next question for you, likely Cody, is it's related to pricing. First, can you talk about the differences in pricing and how you compare to your competitors? Sure. Our pricing model tends to be that our hardware price point's relatively similar to our competition. If you think about our portable handhelds, they're pretty similar in price to the competitor. Our big area monitor is priced exactly at the biggest competitor's price point. The services are an additional layer on top of that. You know, you can look at it and say we're a more expensive option in that context because we have that service portion. Keep in mind that service portion reduces their operating costs. Like the first prong to that service is getting rid of that manual process of compliance of my gas detection fleet, and then each of those services above it. It's really up to a customer to decide, you know, what does being able to talk to my personnel in the field mean to me? You know, how much value added am I bringing to? You know, realistically, we would say we win both customers who are looking at price point purely, like some of those water and wastewaterers. The first one of those we won in Europe. I think 80% of that RFP was based on cost, and we won that one. You know, but you know, you do have to explain to the customer. You have to have a customer that understands what their real cost of operating that fleet is. Okay. Thank you. Next question is related to that. Can you talk about how your customers reacted to price increases you've implemented over the last couple of years? Can you walk us through when you expect to generate earnings? Again, I know that's 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. You know, if you look at the growth going forward, you know, again, you're right, we don't give a full-year number of that, but the analyst expectations are in that, you know, 28%-30% growth numbers. We see that as, you know, there's plenty of market and plenty of opportunity, particularly with the new products we're putting in the pipeline, the maturity of our space in the market right now, to see that continue for multiple years, you know, 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-over-quarter, year-over-year. It always has that growth, but we do have some cyclicality to our hardware sales. Our sales ramp up to Q4. Q1 being Christmas, you know, all kinds of other things in November, December, January is a drop from Q4, but a growth from the Q1 before. When you're looking at that transition, we've been positive. We have said market where that's going to happen this year, but it will happen in the latter half of the year. Okay. Thank you. This question is, I guess, topical. Is there an AI component to your business or fit to your business, and how do you see that playing out over the next few years? Yeah. You know, there definitely is. One of the things we don't talk a lot about are the devices that we have generate data all the time. Personal data, you know, 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 propositions to customers. You know, 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 out of some of that data. Long term, there's real data, real value in just integrating AI with that data side. We just don't, you know, we don't like to throw it out to the market, you know, AI, but it'll 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. Great. Thanks, Cody. 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? Yeah. You know, the rest of the that sort of market space, maybe, you know, 8%, 10% kind of thing. You know, really 8% or so would be a good number for if you wanna talk developing world. Standards are getting, you know. Well, partially the standards, but I'd say it's more the international companies themselves. Like, if you look at a Dow Chemical, their plants are operated the same around the globe. It's really getting into those large enterprise-based customers and then seeing that accept, you know, moving that 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. We're seeing some real strong interest in some, you know, non-traditional safety markets, both based on that combination of safety and value prop that I can better understand how my workforce functions. It's certainly a trend. Like, it's not gonna be the core driver of business, you know, but it's a trend you see across the globe right now. Okay, thank you. Has the company considered a U.S. supplemental listing? It's something we've considered. We don't think the timing's quite right now, but you know, it is something that we're certainly looking at for the future. Okay, great. Thanks. I think this is the last question. There may be 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 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 two to three years? Yeah. Looking for the next 2-3 years, certainly we're not looking at we think we have better things to do with our cash than dividends to be, you know. I know that's maybe not a popular thing to say that we'd like to say we were putting out the dividend base, but I think, you know, from our standpoint, it will be a balance of looking at are there things we can do to deploy capital for more growth? 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, you know, increasing the potential long-term profitability and growth of the company. Perfect. Thank you. Again, to our audience, if you asked a question and you felt it didn't get addressed, simply email me, glenn@bristolir.com, 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. Yeah. Again, thanks very much, everybody, for attending today. You know, if there's follow-up questions to Glenn, 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 facility is here, our core operations. It's a great way to see and understand the sort of the culture of the company and the feel and the vibe and the direction. As far as the business itself, I just say watch this space. This is gonna be a really exciting couple of years for us. Okay. Perfect. Thank you very much, Cody. Thanks, guys. Thanks to our audience, and this concludes this presentation.