Quick Look: Blackline Safety
Project Poor Man's CSU, Part 1
Blackline Safety is a Canadian company that sells “connected safety devices.” The company sells a combination of hardware and software products with a focus on 1) gas leak detection, and 2) lone worker monitoring and evacuation.
It came up on my screen as its EV/Rev is around 1.5x, with fast historical and expected growth. (30%+)
Unfortunately, that’s where the good parts stop.
The biggest issue is that the company has maybe 2 quarters of runway left. As of 2022 October, co had $23m of cash, $8.5m of short term investments, and $8.5m in bank debt. The company also burned $60m in 2022, including $17m in Q4. Gulp.
The company is in cost-cutting mode, as it should be. However, Q4 run-rate opex was still $21.5m, or $86m annualized. Remember this number.
The company has quite a bit of non-software revenue. About half of the revenue comes from hardware, at ~20% gross margins. Another 5% of revenue is in non-software services. As a result, overall gross margin is low, at mid 40% range.
The company is expected to earn $104m for FY23 (40% growth rate), and $133m for FY24 (27% growth). If they manage to hit this target, while keeping expenses flat, the implied cash burn is around $70m for the two years1.
At 45% gross margins, Blackline will need to get to around $190m in revenue to break even. Current forecast has them reaching this in 2026. Adding in additional burn in FY25 and 26, total cash burn - at flat expenses, come to roughly $90m.
The company is saying that they will exit FY23 at positive adjusted EBITDA. I am not quite sure how they’ll manage this.
Even if they can raise at current prices, the implied market cap is $285m.
Given the mix of revenue, exact valuation is a bit tricky to do, but just as a reference: the exit ARR for FY23 was $36.6m.
So, overall:
Blackline looked like a beaten down, fast growing company.
But it’s going to run out of cash soon, and will need to raise.
The implied valuation on software revenue - even if you give some credit for the product / non-software services revenue - is very high.
This one is getting a quick pass.
Postscript: Project Poor Man’s CSU is something I’m experimenting with currently at portfolio and at substack level. A quick post on it will go up shortly.
($104+$133)*0.45=$106. $86m*2=$172m. There’s also some additional CAPEX (and maybe some lease liability payments) which rounds it up to $70m.