Mr. Cody Slater reports

BLACKLINE SAFETY REPORTS FISCAL SECOND QUARTER 2023 RESULTS - RECORD REVENUE OF $24.1 MILLION UP 45% YEAR-OVER-YEAR

Blackline Safety Corp. has released its fiscal second quarter financial results for the period ended April 30, 2023.

Management commentary

"In Q2 our year-over-year revenue growth accelerated to 45 per cent compared to Q1 which saw 34-per-cent growth and represented our 25th consecutive quarter of year-over-year revenue growth. The increase was driven by strength in both our service and product segments which grew 46 per cent and 43 per cent, respectively. We were able to achieve this while maintaining our reduced cost structure as we continue on our path to achieving positive adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] by the end of this fiscal year," said Cody Slater, chief executive officer and chair of Blackline. "Through our revenue growth and sales mix, we were able to deliver 52-per-cent gross margins; a quarterly record of $12.5-million driven by record service margins of 75 per cent, all of which validates the opportunity for our business model to generate free cash flow in the near term.

"In addition, our annual recurring revenue (ARR) also accelerated from Q1, advancing 38 per cent year-over-year to $42.4-million. Exceeding $40-million in ARR is an important milestone in our journey as Blackline scales its connected worker solution globally and continues to earn greater market share through customer adoption of its world-class products and services across a variety of industrial verticals.

"Regionally, we experienced year-over-year growth across the board highlighted by 65-per-cent growth in the United States, 24-per-cent growth in Canada and the rest of world market set a new high-water mark with nearly $2-million in quarterly revenue, growing by 123 per cent year-over-year as our robust pipeline continues to positively impact our business.

"On the margin front, we experienced the strongest service margins in company history of 75 per cent. Our product margins also improved significantly year-over-year from 13 per cent to 26 per cent and increased sequentially from 21 per cent in Q1 2023. Looking forward, we anticipate continued margin improvements through the remainder of the fiscal year through our enhanced pricing strategy, increased manufacturing automation and continued cost optimization.

"We ended the second quarter in a solid financial position with total cash and short-term investments on hand of $21.9-million. We also completed our lease securitization facility during the quarter, with $8.3-million of funding received from the sale of the initial tranche of lease contracts. Additional funding will be received for lease agreements from Q2 as well as new agreements signed with our customers. This facility provides Blackline with the financial flexibility to accelerate the adoption of our lease program, driving stronger margins and even better customer retention while lowering the company's overall cost of capital. In addition, it provides Blackline with the opportunity to aggressively market our lease program which will enable easier customer adoption through an all-in monthly fee, including the new G6 product line."

Fiscal second quarter 2023 and recent financial and operational highlights:

• Total revenue of $24.1-million, a 45-per-cent increase over the prior year's Q2.
• Service revenue of $12.9-million, a 46-per-cent increase over the prior year's Q2.
• Product revenue of $11.2-million, a 43-per-cent increase over the prior year's Q2.
• United States market momentum continues with 65-per-cent growth over the prior year's Q2.
• Rest of world markets continues rapid expansion with 123-per-cent growth over the prior year's Q2.
• Canadian market remains strong with 24-per-cent growth over the prior year's Q2.
• ARR growth of 38 per cent year-over-year to $42.4-million.
• Rental revenue of $1.6-million, a 247-per-cent increase over the prior year's Q2.
• Total expenses, excluding non-recurring transaction costs, were $18.1-million, declining $3.3-million year-over-year.
• Closed a $50-million-plus lease purchase facility with CWB Maxium with initial financing of $8.3-million, enhancing the flexible buying options offered to customers by Blackline while improving the company's liquidity and overall cost of capital.
• Announced a $3.2-million deal with a leading U.S. energy company to protect 1,000 workers, replacing a non-connected competitor with Blackline's wearables and Blackline Analytics cloud-based solution.
• Released the company's third annual environment, social and governance (ESG) report continuing Blackline's commitment to diversity, inclusion, environmental sustainability and community engagement.
• Expanded production capacity by 30 per cent to 50 per cent by repurposing space at the company's existing headquarters in Calgary.

Key financial information

Fiscal second quarter revenue was $24.1-million, an increase of 45 per cent from $16.7-million in the prior-year quarter. Total revenue for each geographical market increased with the United States leading the growth, up 65 per cent while the other regions also demonstrated strong growth with rest of world up 123 per cent, Canada up 24 per cent and Europe up 17 per cent, year-over-year.

Service revenue during the fiscal second quarter was $12.9-million, an increase of 46 per cent compared with $8.8-million in the prior-year quarter. Recurring software services revenue increased 36 per cent to $11.3-million and rental revenue increased 247 per cent to $1.6-million. Software services growth was attributable to new activations of devices sold over the past 12 months as well as net growth within Blackline's existing customer base of $1.6-million which represented net dollar retention of 118 per cent.

Rental revenue continues to be strong, with year-over-year growth of 247 per cent with the comparative period representing the first quarter of the company's strategic focus to provide this short-term project-based offering across North America for the industrial construction, turnaround and maintenance markets.

Product revenue during the fiscal second quarter was $11.2-million, a 43-per-cent increase compared with the prior-year quarter of $7.9-million. The increase in the current-year period reflects the company's expanded sales network and investment in its global sales team over the past 12 months.

Overall gross margin percentage for the fiscal second quarter was 52 per cent, a 10-per-cent increase compared with the prior-year quarter. The increase in total gross margin percentage is due to a combination of a higher sales volume, Blackline's enhanced pricing strategy, continued cost optimization across its business and a shift in revenue mix toward higher-margin service revenue. Product revenue comprised 46 per cent of total revenue in the second quarter, a decrease of 1 per cent from the prior-year quarter, while service revenue made up 54 per cent of total revenue for the quarter, representing a 1-per-cent increase. Service gross margin percentage increased to 75 per cent compared with the prior-year quarter at 69 per cent as service revenue continued to grow, through additional value-added features and the scale absorbing more fixed cost of sales.

Product gross margin percentage increased to 26 per cent from 13 per cent in the prior-year quarter and 21 per cent in the fiscal first quarter as the company has mitigated most global supply chain challenges that it has experienced since the third quarter of 2021. During the quarter the company completed most sales orders under its newly introduced pricing structure. The company has automated more of its manufacturing line, improving the efficiency and throughput of its operations.

Net loss was $6.6-million, or nine cents per share in the fiscal second quarter, compared with $14.5-million or 24 cents per share in the prior-year quarter. Net loss decreased due to an increase in total gross margin as well as decreases in sales and marketing expenses and product research and development costs, partially offset by increases in general and administrative expenses which were higher due to transaction costs related to the closing of the company's lease securitization facility.

Adjusted EBITDA was ($4.5-million) or (six cents) per share for the fiscal second quarter compared with ($12.3-million) or (20 cents) per share in the prior-year quarter and ($6.2-million) or (nine cents) per share in the fiscal first quarter of 2023. The $7.8-million improvement in adjusted EBITDA is primarily due to the increase in total gross margin, as well as the decrease in total expenses.

At quarter-end, Blackline had total cash and short-term investments on hand of $21.9-million and $8-million of availability on its senior secured operating facility after paying down $1-million during the quarter. The decrease in cash and short-term investments is mainly due to operating losses which were offset by financing from the initial tranche of leases that were sold under the company's $15-million plus $35-million (U.S.) securitization facility. The lease securitization facility will create a step change in Blackline's cash burn which, combined with its improving gross margins and cost discipline, ensures the company has the cash it requires to execute on our path to quarterly positive adjusted EBITDA.

Blackline's interim condensed consolidated financial statements and management's discussion and analysis on financial condition and results of operations for the three and six months ended April 30, 2023, are available on SEDAR under the company's profile. All results are reported in Canadian dollars.

Conference call

A conference call and live webcast have been scheduled for 11 a.m. ET on Wednesday, June 14, 2023. Participants should dial 1-800-319-4610 or 1-416-915-3239 at least 10 minutes prior to the conference time. A live webcast will also be available. Participants should join the webcast at least 10 minutes prior to the start time to register and install any necessary software. If you cannot make the live call, a replay will be available within 24 hours by dialling 1-800-319-6413 and entering access code 0243.

About Blackline Safety Corp.

Blackline Safety is a technology leader driving innovation in the industrial work force through IoT (Internet of Things). With connected safety devices and predictive analytics, Blackline enables companies to drive toward 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 200 billion data points and initiated over seven million emergency alerts.

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