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The following segment was excerpted from this fund letter.
Over the past year, we have built a position in our first Canadian listed company. Blackline Safety is a provider of gas detection and safety monitoring systems to the energy, industrial, transportation, and consumer packaged goods verticals.
Blackline is led by Founder/CEO Cody Slater, who entered the gas detection space in 1987 as an undergraduate at the University of Alberta when he invented the RigRat. The RigRat was the world’s first wireless area gas detector. Mr. Slater then founded BW Technologies to further develop and market gas detection systems. BW Technologies was responsible for the world’s first disposable portable gas detector and the first wearable multi-gas detector. BW also pioneered a fleet management system for automated detection report generation. BW Technologies was sold to First Technology in 2004 and subsequently acquired by Honeywell in 2006. The same year BW was acquired by First Technology, Mr. Slater founded Blackline Safety.
The company released several GPS-enabled asset tracking products over the next decade (think Apple Air Tag) before pivoting to gas detection in 2015 with the release of the G7 connected gas detector. The G7 added capabilities like two-way radio, fall detection, facility-wide alerting, 24/7 remote monitoring, and automated compliance reporting to an internet-connected gas detector.
Following the release of the G7, Blackline began taking share from competitors like Honeywell (HON), Industrial Scientific (owned by Fortive (FTV)), MSA (MSA), and Drager. Competing gas detectors are mostly unchanged from the 80s (market leader Honeywell still sells the original RigRat gas detector that Mr. Slater invented in 1987) and rely on alarms to notify workers of danger. These devices can fail if a worker is already incapacitated or working in loud/chaotic environments, with potentially fatal consequences. The G7/G6’s connectivity allows for falls or alarms to automatically trigger emergency response and facility evacuations, while also saving time and costs through automatic compliance and safety reporting. We believe that Blackline’s products are significantly safer than existing opportunities and that the company will continue to take share from legacy products.
Competitors have been slow to respond, with only MSA launching a competing product so far. MSA launched its first connected products late in 2023, some of which were pulled from the market after release due to quality control issues.
Today, Blackline sells hardware, consumables (gas detection sensors/cartridges), and bundles a service contract with each hardware sale with an average length of 3-5 years. Its net expansion rate is over 130% (on average, a customer spends >30% more on Blackline hardware/service year-over-year), but only a fraction of this increase is from price increases.
Sales have grown from less than $10 million in 2018 to over $50 million in 2023 (>40% CAGR).
We believe that Blackline offers 100% upside over the next 3 years through a combination of sustained revenue growth and margin expansion as revenue scales over a largely fixed cost base. As margins inflect, we expect the company’s multiple expand as well, but this would be a bonus (leading IoT companies listed in the U.S. have sales multiples north of 10x sales, which compares to Blackline at ~2x).
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
