Initiated a position this morning. GLTA Following the release of “outstanding” third-quarter results, Ventum Capital Markets analyst Amr Ezzat sees Blackline Safety Corp.“flexing its muscle,” reiterating a “highly positive” outlook for the Calgary-based company given its “strengthening profitability and accelerating momentum.”
“Born from a relentless commitment to innovation, Blackline has emerged as the undisputed industry leader in true connected safety solutions,” he said. “Since F2014, Blackline has reinvested almost 26 per cent of its sales into product development resulting in a differentiated product line and a three- to five-year technological lead over competitors. Yet, despite its clear market leadership, investors often pigeonhole this trailblazer as merely a hardware provider to the Canadian energy sector. This narrow view overlooks a much richer narrative. Over the years, Blackline has diversified both its revenue streams and its global reach, with 75 per cent of business now outside Canada and only 40 per cent tied to oil and gas — a far cry from the Company’s beginnings. At the core of Blackline’s strategy is its unique business model that fully integrates high-margin service revenues with each hardware sale and has led to a 45 per cent/38 per cent sales/ARR CAGR [annual recurring revenue compound annual growth rate] over the last five years. In fact, Blackline has cemented its position as one of the fastest-growing Canadian tech companies over the past several years.
“As Blackline continues to scale, this model is set to unlock substantial margin expansion, with GM% [gross margin percentage] expected to rise to 62 per cent by F2028 from 56.7 per cent (trailing 12 months), fuelling aggressive earnings growth. We foresee Blackline evolving from a breakeven EBITDA business to a 15-per-cent EBITDA margin business by F2028, with further expansion expected in our longer-term projections.”
Before the bell on Wednesday, Blackline reported an “unexpected” positive Adjusted EBITDA of $0.8-million for the quarter, “significantly” ahead of both the Street’s forecast of a loss of $0.8-million and Mr. Ezzat’s projection of a loss of $1.4-million. The analyst called it “a substantial turnaround” from a loss of $2-million in the second quarter and negative $3.8-million during the same period a year ago.
“The earlier-than-anticipated profitability sets a strong foundation heading into the seasonally stronger Q4, positioning Blackline for continued momentum,” said Mr. Ezzat. “Revenue grew 35.7 per cent year-over-year to $33.7-million (versus Street expectations of $31.9-million), driven by robust hardware sales and a notable 34.1-per-cent year-over-year growth in recurring service revenues, with consolidated gross margins expanding to 59.0 per cent. With Annual Recurring Revenue (ARR) reaching a record $62.1-million (32.1 per cent year-over-year) and a strong Net Dollar Retention (NDR) rate of 128 per cent, Blackline is effectively scaling its high-margin, high-visibility service business while maintaining strong retention and upsell performance.”
After raising his revenue and earnings expectations through fiscal 2026, Mr. Ezzat bumped his target for Blackline shares to $7 from $6.50, keeping a “buy” recommendation. The average target is $6.94.
“We expect the Company to grow its sales nearly twofold by F2026 and post an EBITDA positive F2025; as such, we believe using multiples on short-term estimates significantly (and incorrectly) undervalues BLN shares as they give no recognition to the Company’s explosive growth profile,” he said.
Elsewhere, Canaccord Genuity’s Doug Taylor upgraded Blackline to “buy” from “speculative buy” with a $7 target, up from $5.50.
“The increased target comes as we roll forward our model after better-than-anticipated Q3 results which demonstrate the company continuing to aggressively take share in the connected safety market,” said Mr. Taylor. “Given the highly anticipated pivot to positive EBITDA with a view to positive cash flow next year, we believe the risk profile of the company has improved. In recognition of this, we are dropping the “speculative” qualifier and reducing our discount rate, resulting in a higher target price. We see further upside as the company grows into its ‘rule-of-40′ aspirations with a profitability profile which should broaden its investor appeal.”
Analysts making target changes include:
* ATB Capital Markets’ Martin Toner to $7.50 from $6 with an “outperform” rating.
“We think the highlight of the quarter was BLN reaching positive adj. EBITDA, ahead of the Company’s target of reaching positive adj. EBITDA by 2024 end,” said Mr. Toner. “As we look towards the seasonally stronger Q4, the Company has significant gross profit growth potential that can push margins higher. We believe the Company can continue to grow with some operating expense reinvestment, and we now expect higher margins over time.”
* National Bank’s John Shao to $6.50 from $6 with an “outperform” rating.
“Blackline Safety’s FQ3 results were in line with our quarterly preview where we called out scaling executions and favorable seasonality to drive strong performance,” said Mr. Shao. “Additionally, FQ3 saw a pleasant surprise with a positive adj. EBITDA, one quarter ahead of the previous schedule. If anything, we believe those results meaningfully materialized what used to be theoretical gross margin levels and operating leverage potential, and conveniently positioned BLN on a track of scaling profitability as it continues to grow its top line. With strong demands for its existing products across multiple regions and the future uplift from new products, Blackline is on an uninterrupted path to becoming a rule 40 company.”