EARNINGS UPDATE
Q3/F24: VERY HIGH ORGANIC GROWTH MACHINE TURNS PROFITABLE
THE TD COWEN INSIGHT
Despite the stock being at a multi-year high, it is still trading at half the peer group average valuation and near the bottom end of its historical range. We believe the shares should continue to re-rate, as we expect BLN to continue generating organic growth well above its peers, with improving margins and balance sheet. Our target price increases to C$7.50 (from C$6.00).
Event
We are updating our forecasts following Blackline's Q3/F24 results. For our initial take, click here.
Impact: POSITIVE
Sustaining its >30% y/y organic growth profile. Revenue has grown organically at a >40% CAGR since 2018, with >30% growth each year except F2020 due to the pandemic, when organic growth was only 15%. BLN is poised to deliver another year of >30% organic growth (YTD organic growth is >30%), aided by strong customer demand in the U.S. and abroad, NDR at record levels, and a cashed up balance sheet to help expedite lease agreement sales cycles.
We assume organic growth moderates into the mid-20% range next year, albeit with a significant improvement in Adjusted EBITDA margins. In addition to the aforementioned growth drivers, BLN should benefit from the launch of the EXO 8 this quarter (more details below), increasing traction for G6, and even stronger execution in international markets.
Continued margin improvements expected. BLN expects to remain Adjusted EBITDA positive in F2025, as it projects revenue to grow at a much faster pace than expenses. Key S&M growth investments in F2025 will be focused on sales support, as BLN is happy with its direct sales coverage. The strong execution of its customer success team has been key to driving NDR to record levels.
We also expect further GM gains, aided primarily by increased scale/volumes but also helped by the EXO 8 launch, which carries higher GMs vs. the G7 EXO.
EXO 8 will double its area monitoring TAM. Key upgrades for the EXO 8 include detection of up to 8 gases (vs. 5 currently and more than key competitors), integrated gamma radiation sensors (better compete with Honeywell's leading AreaRAE Pro), AlertLink capabilities, and automatic bump and calibration services (key for upstream customers).
EXO 8 (and the G6) makes BLN more competitive in the refinery market, particularly vs. ISC's leading Radius BZ1 which can detect up to 7 gases. Its modular sensors would also be attractive for the HazMat market.
We understand the EXO 8 will carry a much higher ASP (price will vary by configuration) vs. the G7 EXO with higher gross margins too.
We will get more details at BLN's Analyst Event at NSC this Monday.