Blackline Safety Corp

TSX:BLN

Earnings Call Analysis

Blackline Safety Achieves Record Growth and Margin Expansion

Blackline Safety reports a record-breaking fourth quarter with $30 million in revenue, marking a 36% increase over the previous year and a major milestone of $100 million in annual revenue. Their annual recurring revenue (ARR) topped $51 million, a 40% surge, supported by robust hardware sales and a remarkable net dollar retention rate of 129%. Service margins climbed to an all-time high of 77%, generating $11.6 million in gross profit, while hardware gross profit soared by 66% to $4.9 million. The company boasts the strongest financial standing in its history with over $29 million in liquidity and anticipates sustainable margin percentages throughout the upcoming year. Even with substantial revenue growth, overall operating expenses dropped by 3%, reflecting improved cost management and efficiency. Blackline's focus on increasing profitability is evidenced by a dramatic EBITDA loss reduction from 78% of total revenue to under 5%, and a 90% improvement in cash flow from operating activities.

Record-Breaking Fiscal Year Closes on a High Note

Blackline closed its fiscal year with a triumphant 27th consecutive quarter of year-over-year revenue growth, culminating in a milestone $100 million annual revenue. The fourth quarter alone saw an impressive 36% jump from the previous year, achieving a record-setting $30 million in total revenue. Annual recurring revenue (ARR) soared to $51 million, marking a 40% increase, boosted by robust new hardware sales and an outstanding net dollar retention rate of 129%. Blackline's service revenue climbed 38% in the quarter, signaling ongoing scale and efficiency with a record service margin of 77%. Product segments also shined, delivering a massive 66% gross profit growth thanks to strategic pricing, supply chain management, and manufacturing automation, which promise even greater profit margins ahead.

Financial Efficiency Improvement and Geographic Expansion Fuel Growth

Operating with strategically controlled costs, Blackline achieved an impressive 82% betterment in its EBITDA loss, bringing it down to less than 5% of total revenue. Even as operating cash burn tumbled by 90%, revenue growth didn't stagnate, showcasing the company's competencies in scaling efficiently. Blackline's affordable global sales team and distribution network facilitated a 35% year-over-year increase in product revenue, iterating the success of their market reach and sales initiatives. Without inflating the annual marketing expenses, Blackline's product margin showed unprecedented growth every quarter, and service revenue continued its upward trajectory of over 30% growth for the sixth continuous quarter.

Focused Innovation and Product Development Paying Dividends

R&D expenses were reduced by 35% from the previous year, but product innovation didn't stutter. With development teams honing in on new generations of core products and services, Blackline is set on maintaining its edge in market innovation. Simultaneously, the rental business demonstrated tremendous growth, heralding expanded coverage into Europe and the Middle East for the foreseeable future.

Sustained Revenue Growth and Solid Pipeline Ahead

Geographic performance analysis revealed that the U.S. market topped growth charts with an 89% increase, while steady gains were also noted in Canada and Europe. Forecasts of continued strong growth in product sales and rentals for the international markets underline an optimistic outlook for the fiscal year 2024. Operating expenses downsized year-over-year, aiding Blackline's pursuit of profitability further as it continues to secure pivotal contracts and expand its distribution network globally.

Cash Management Strategies and Future Commitments

Strategically leveraging its lease program and securitization facilities, Blackline reported $39.6 million in future contracted cash flows with considerable liquidity on its lease facility. As part of its commitment to innovation and discipline in cost management, the company doubled production capacity without expanding its physical footprint, further emphasizing the focus on efficiency to maximize gains and shareholder value. The path to profitability is clear, with the firm aiming to be a 'Rule of 40' SaaS company by the end of 2024, and it seems well on its way with a shift from a negative 37% to a positive 31% in this metric.

Exchange Rate Variations and Customer Behavior During Economic Uncertainty

The strengthening Canadian dollar poses new challenges in Blackline's financial adjustments, as most accounts receivable and financing are denominated in U.S. dollars. As for customer behavior amidst potential economic downturns, Blackline has yet to see signs of spend restriction, with its Q1 pipeline remaining robust. The introduction of new features has been received favorably by the market, although it's too early to link them directly to closed deals as the sales cycle incorporates a time lag.

Looking Ahead: Margins, NDR, and Product Adaptation

Contributions from new products to revenue remain modest but are picking up momentum. In addition, Blackline anticipates peak gross margins to be reached by early 2025, driven by a balanced mix between products and services and growing hardware numbers. Pricing increases are expected to gradually inflate revenue as new features capture additional market share, with further penetration within existing large client accounts contributing significantly to the Net Dollar Retention (NDR) in the upcoming year.

Securitization Facility and Customer Financing

Customer financing through leases varies from period to period, largely impacted by the contractual obligations set forth between Blackline, its customers, and securitization partners. Despite these variations, the company strives to optimize cash management, ensuring this facility is maximized to the minimal level possible each period.

Earnings Call Transcript 2023-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Blackline Safety Corp. Fourth Quarter 2023 Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. [Operator Instructions].I would now like to turn the conference over to Scott Boston, Vice President of Finance.

[Scott Boston, executive]

Welcome, and thank you for joining us. Today, we will be discussing our fiscal results for the fourth quarter and year ended October 31, 2023, which were issued before market opening this morning. With me today is Cody Slater, CEO and Chair of Blackline Safety Corp as well as our CFO, Shane Grennan. I will turn the call over to Cody in just a moment for an overview of our fourth quarter. Following that, Shane will discuss the financial highlights of the quarter in greater detail. Cody will close with our outlook and some additional commentary before we take questions. I'd like to remind everyone that an archive of this webcast will be made available on the Investors section of our website. I would like to note that some of the information discussed in this call is based on information as of today and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings news release as well as the company's SEDAR filings. During this call, there will be a discussion of IFRS results, non-GAAP financial measures, non-GAAP ratios and supplementary financial measures. A reconciliation between IFRS results and non-GAAP financial measures is available on the company's earnings news release and MD&A, both of which can be found on our website, blacklinesafety.com and on SEDAR. All dollar amounts are reported in Canadian dollars, unless otherwise noted. With that, I will hand the call over to Mr. Slater.

[Cody Slater, executive]

Thank you, Scott. Good morning, everyone, and welcome to Blackline Safety's Fourth Quarter 2023 Conference Call. I'm pleased to share today Blackline's fiscal fourth quarter results, our 27th consecutive quarter of year-over-year revenue growth and the milestone achievement of $100 million of revenue for the fiscal year. Our $30 million in total revenue for the fourth quarter was also a record for the company and is a 36% increase over the prior year. We saw our annual recurring revenue or ARR surpassed $51 million, up 40% year-over-year, driven by new hardware sales as well as our industry-leading net dollar retention of 129%. We continue to achieve greater scale with our service revenue, which grew 38% overall to $15 million for the quarter. And with more customers adopting more value-added services, our service margin hit a new high of 77%, generating $11.6 million of gross profit. Our Hardware segment generated a record $4.9 million of gross profit, up 66% year-over-year, driven by increased sales and margins of 32%, our highest in 3 years. Improvements in our pricing, supply chain management and manufacturing automation will continue to push our margins higher and unlock even greater profitability. With our improving margins, growing ARR and a step change decrease in cash burn, we exited the quarter in the strongest financial position ever with total liquidity of $29.2 million in our cash, short-term investments and operating facility and $50 million available on our lease securitization facility. 5 quarters ago, we set out to work towards turning Blackline into a profitable business. I'd like to highlight the dramatic progress we have made since that time. In that quarter, our EBITDA loss represented 78% of our $18.6 million of total revenue. And our cash used in operation activities was 105%. Today, we reported an EBITDA loss of less than 5% of our total revenue, an improvement of 82% with cash used in operating activities dropping to just 7%, an improvement of 90%, all while achieving revenue growth of 36%, finishing with a record $30 million in the quarter. So we did not hit our ambitious goal of reaching positive EBITDA yet, it is clear Blackline has been transformed into an engine that can continue to deliver strong top line growth with significant profitability in the long run. I will now turn the call over to our CFO, Shane Grennan, to discuss our fiscal fourth quarter results and financial position in more detail.

[Shane Grennan, executive]

Thank you, Cody, and good morning, all. As Cody mentioned, we achieved our 27th consecutive quarter of year-over-year revenue growth of 36%, generating total revenue of $30 million. This includes $15 million in product revenue, which increased 35% year-over-year. The increase in the current year reflects the efforts of Blackline's strong global sales team and distribution network as well as continued targeted demand generation and sales development activities. Product gross margin of $4.9 million improved 66% in the fourth quarter, thanks to the growth in revenue and an increase in gross margin percentage to 32% from 26% in the prior year period. Product margin increased every quarter during 2023 as we saw benefits from our increased scale, manufacturing automation, enhanced pricing and improved supply chain management. We expect to continue our incremental improvements to this gross margin level during fiscal 2024. Service revenue during the quarter increased 38% to $15 million, our sixth consecutive quarter with greater than 30% growth in this segment. Software Services were a major contributor to this growth, up 36% year-over-year, which also drove ARR growth of 40% to $51.1 million. Newly activated devices contributed to year-over-year growth of $1 million in the quarter and net service increases within our existing customer base contributed $2.5 million. This resulted in a net dollar retention of 129% as we continue to raise the bar on this key metric. Our pricing increase, combined with customer device count expansions and the efforts of our client success team to increase the penetration of higher-value services such as Blackline's safety operation center, personnel monitoring, to a voice and push to talk, all contributed to this impressive number. Our rental business also continues to generate robust growth, setting a new record of $1.8 million in revenue in the seasonally strong fourth fiscal quarter, a 69% improvement over last year's quarter. We expect continued strong year-on-year growth in the rental business in fiscal 2024, with the rental team having expanded to cover Europe and the Middle East regions where there is huge demand for our connected area and rearward monitors for 3- to 9-month projects. Our service gross margin percentage set a new benchmark, 77%, generating over $11.6 million of gross margin for the quarter. We believe this is a sustainable margin percentage throughout fiscal 2024 as we continue our penetration of value-add data and communication services for our customers. Our total gross margin percentage came in at 55%, yielding $16.5 million, setting another quarterly record for total gross margin. The growth in total gross margin is due to revenue mix, cost optimization efforts across our business and our increased scale. In terms of our geographic growth mix, we are pleased with our performance as each one of our key geographic markets improved from the year ago comparable period. The U.S. market represented our largest growth region, improving 89% from last year's Q4 and our sales team secured several major wins across the region. Our rest of world market also saw strong growth of 14% compared to the prior year quarter and is primed to provide significant growth in fiscal 2024. Additionally, our Canadian and European markets were able to see year-over-year increases of 12% and 1%, respectively, as we continue to have excellent product wins and customer loyalty across these regions. Shifting now to operating expenses. Our total expenses for the quarter were $19.8 million, which was down $0.5 million or 3% compared to our expenses of $20.3 million in the prior year quarter. Excluding impacts of foreign exchange, this was the seventh consecutive quarter where Blackline has reduced its total expenses as a percentage of revenue. General and administrative expenses increased just 2% from the prior year quarter to $5.8 million, which represented 19% of revenue compared to 26% in the prior year. The slight increase was due to an increase in salary costs, which was offset by lower consulting and professional service fees. Sales and marketing expenses increased 24% from the prior year quarter to $11.2 million, which represented 37% of revenue compared to 41% in the prior year's period. The increase was due to higher commissions resulting from higher hardware sales in the quarter and bad debt expense arising from a bad debt recovery in the prior year, which was not present in the current year. It is important to note that the 36% increase in annual revenue for fiscal 2023 was achieved while keeping total annual sales and marketing expenses flat. Product research and development costs decreased 35% from the prior year quarter to $3.6 million and decreased as a percentage of revenue to 12% from 25% to the prior year period. Salaries consulting and contractor costs were all lower following the workforce reduction that occurred in the prior year. Our development teams remain focused on next generations of our core products and services. We look forward to the impact these innovations will make as these products begin to launch in late 2024. Moving on to capital expenditures. These totaled $1.9 million for the quarter, primarily for additions of revenue-generating sensor cartridges being used by customers and rental equipment to support the continued growth of that service line. Inventory totaled $17.1 million at the quarter end compared to $18.7 million at the end of the prior year. With inventory turnover improving significantly as our sales continue to grow, we see inventory continuing to be a source of cash for us over the next several quarters. Our lease program had a total of $39.6 million in future contracted cash flows at October 31, 2023, up from $36 million on October 31, 2022. During the quarter, we received proceeds from lease securitization facility with CWB Maxium of $0.6 million and made scheduled repayments of $1.5 million. The lease facility continues to be an important part of our cash management strategy, and we will leverage this throughout 2024. At the end of the year, we had over CAD 50 million equivalent of availability on this facility. At quarter end, we had total cash and short-term investments on hand of $16 million with over $13 million of availability on our 2-year senior secured operating facility with ATB Financial that was renewed and expanded to a maximum capacity of $25 million in October. We remain confident that we have the resources required to execute our business strategy of achieving sustainable growth, innovation and disciplined cost management so that Blackline can generate positive free cash flow in fiscal 2024. I will hand it back to Cody to discuss our outlook and provide closing remarks. Cody?

[Cody Slater, executive]

Thank you, Shane. In 2017, Blackline introduced the industrial world to the idea of connected safety as we brought the G7 connected wearable to market. We believe that the market would adopt and pay for the added value from this innovative approach to protecting their people. Clearly, our customers agree with us as at $100 million of annual revenue, we are now one of the most significant players in the gas detection industry and by far, the fastest growing. Over the last fiscal year, we not only bolstered our financial strength, we also realized numerous corporate achievements and milestones. Deeps with increasing customer demand for our solutions, we doubled our manufacturing capacity while maintaining the same physical footprint of our production facilities in Calgary, Canada. We secured numerous multiyear contracts with prominent global customers, including multimillion-dollar deals in the Middle East and a $3.2 million deal in the Permian Basin, protecting over 1,000 workers with our connected devices. We continued expansion of our global reseller network. We now partner with over 260 distributors around the world. And our commitment to product innovation was yet again, recognized by health and safety professionals as Bankline secured our 10th new product award from occupational health and safety. As we look to fiscal 2024, we remain committed to a balanced approach of top and bottom line growth as well as product innovation. I see this is driving us towards the gold standard for SaaS companies and exiting 2024 as a Rule of 40 company, where the combination of our top line growth and EBITDA margin equal or exceed 40%. To put our progress towards this goal in perspective, a year ago, our rule of 40 calculation was negative 37%. And this Q4 saw the company reach positive 31%, clearly on the right path. I'm proud of the dramatically stronger company that we are today than we were 18 months ago when we first embarked on our path to profitability. We are well positioned to accelerate along this pouch while becoming the dominant player in the multibillion-dollar gas detection and connected safety industry. The way forward is clear for us, to drive growth in our top and bottom lines, generating significant shareholder value over the coming years as we continue to lead the way to a connected safety future. I want to thank the Blackline team across the globe for their commitment to our purpose and for the incredible results they have collectively delivered. I speak for all Blackline employees when I say that we are grateful to our customers for their continued trust in Blackline to protect their people around the world. Thank you for your attention this morning.And I'll now turn it over to the operator for questions.

[Operator]

[Operator Instructions]. The first question comes from John Shao.

[Meng Shao, analyst]

First of all, solid progress on the cost reduction front on a year-over-year basis, so my question is when we benchmark this quarter's EBITDA loss to the breakeven expectation at the beginning of the year, what is the delta here? Is this because there are some deals that are delayed in Q4 just because the OpEx is higher than expected?

[Cody Slater, executive]

John, Cody here. I'd say the biggest delta would be a few larger deals that were expected to see in Q4 that were shifted out. A few of the cost reductions we were looking to even though we made great progress on our margin and we’re moving our margin forward on our hardware. We were looking for a few additional cost reductions to take place there that have been delayed due to supply quality issues that have pushed that out a little bit. But again, as you can point to, the trend is all there. Of course, the other thing being the OpEx impact when you looked at that an adjusted number overall. So the core thing would be just a little bit later on some of the hardware revenue side and a little light on the hardware margin from where we've anticipated to be.

[Meng Shao, analyst]

Maybe help us understand the road map to the updated breakeven time lines, which are supposed is going to be the second half of the year. So how much operating leverage do you think the business has given the current cost structure in the current total OpEx?

[Cody Slater, executive]

Well, again, you're right, we're talking in the second half, as you know, I think where to our sales cycle tends to be that we'll see a growth up to Q4 and then a drop in sales back in Q1, Q2, Q3 tends to be back where we were as far as -- again, we're talking solely hardware here. Service revenues just keep growing on a quarterly basis. you're going to see pretty stable cost controls across the board. There were some elevated costs in Q4 here for onetime elements from our sales mix in our distribution commissions, et cetera, they elevated that a little bit. You'll see that drop back down in Q1. All of that just provides the leverage going forward to see a strong EBITDA growth driven as well by -- year-over-year, you'll see improvements in the hardware margin still, part of that is volume-driven that part of that some of getting in some of the supplier changes that we're looking towards and small margin increases on the service side as well, too, also driven by really the price increases we put in place and seeing contracts cycle through those renewals and renew at a higher price point. So slightly stronger margins, good product mix, good strong top line growth and continued management of the cost control will describe that in that second half.

[Meng Shao, analyst]

Lastly, Cody, you mentioned 40% product margin is the goal for 2024?

[Cody Slater, executive]

We're looking really about very high 30%, just under 40%, yes, at the end of the year. So again, just a bit more cost reduction based on the scale, based on some new supply aspects and then really the rest being driven by just the increased scale that margin improves and as well now annual cycle of price increases, which you'll see come again in June this year.

[Operator]

The next question comes from Martin Toner from ATB Capital Markets.

[Martin Toner, analyst]

Congrats on a good number. Just wondering about the sequential increase in sales and marketing expense. Can you give us some more color on the drivers there? Was it in part a function of revenue growth over the past 4 quarters that are some compensation annually paid? And what's the rationale for increasing that sequentially in terms of what you think will happen in 2024?

[Cody Slater, executive]

Martin, a couple of things. One is Q4 always has a bump with us in the context that there's the larger trade shows, the NSC, the A+ drive a pretty significant variance from Q3 to Q4. One of the other I would say, less predictable elements of what happened and what we saw in Q4 was a larger percentage of our lease business going through distribution channels. If our distributors are selling a product, they purchase the product at a discount, but if they sell a product to a lease opportunity, then we wind up paying the distributor and commission. So that drove a significantly higher increase in commissions during that quarter. We'd see that normalizing. That was really driven by 1 or 2 very major deals in the quarter. You see that going down as we go forward. So you should look to see in Q1, a lot of those single time elements that were driving some of those numbers higher drop back down. And then there still will be impacts as we go forward from growth from commissions, but as a percentage of revenue, you see that number drop down.

[Martin Toner, analyst]

Can you walk us through the impact that the strengthening dollar has on your P&L? I presume a substantial portion of COGS and fixed costs are in dollars.

[Shane Grennan, executive]

Martin, this is Shane here. Thanks for the question. So all the different foreign currencies that we have, Martin, our U.S. dollar, GBP, euro and Australian dollar and the U.S. dollar vis-a-vis the Canadian dollar is the biggest impact as we do our realized and unrealized calculations each period. As you know, the Canadian dollar did strengthen against all the currencies, and particularly the U.S. dollar. As a proportion of our accounts receivable, we have a lot larger receivable bonds denominated in U.S. dollars at the end of the year, for example, compared to last year. And we also have our finance leases and the financing equivalent with CDB denominated in U.S. dollars that we didn't have last year. So there's a bigger base that the recalculation is getting done over, and that strengthening of the Canadian dollar has a more exaggerated effect now than it would have had in the past on our numbers.

[Martin Toner, analyst]

One of my preconceived notions is that a lot of enterprises, many of whom are your customers were rationing spending in anticipation of a recession to come. Are you seeing any impact of customers releasing some of those budgets? And do you think that could be a positive impact to 2024?

[Shane Grennan, executive]

Martin, this is Shane speaking here. We haven't seen much in terms of restricting spend from our customers. It's something that we can keep a really close eye on. We look at deal velocity and things like that to tell us if there's something in the market that's coming up. And typically, when that happens, we would see that on both sides of the ocean. We see that in the European business and the North American business. But frankly, I haven't seen any of that yet. So in our customer base, still strong, our pipeline for Q1 is strong. So no, I haven't seen either the restriction or the release, frankly.

[Operator]

The next question comes from Jason Zandberg with PI Financial.

[Jalson Zandberg, analyst]

Just a couple of questions. First, the latter part of the year, you introduced several new features for G6, G7 and EXO, just wondering if you could comment on customer feedback and whether these new features are converting to sales, if you can quantify that at all?

[Shane Grennan, executive]

Shane here again. Really great feedback so far. These features really did target the -- primarily, I'd say, they targeted the top end of the market for us, and that's where they were very well received. So they're not resulting in closed deals yet. There is a bit of a lag between the time you introduce a feature and you see the results of that, but the initial feedback has been very strong, and we see the associated growth in the pipeline due to those features.

[Jalson Zandberg, analyst]

Second question, gross margins have now improved, I think, it's 7 consecutive quarters, which is just a fantastic trend that you've built here. Just wondering if you could talk about when you'd expect to see peak margins, how long can you continue this improvement on your gross margin line?

[Cody Slater, executive]

This is Cody here, Jason. Just a couple of points around that. If you're looking at the overall gross margin, still one of the biggest drivers for that is the mix between product and service. So it can be a bit misleading. We can see that number dried up with our hardware numbers are a little lower. But the real drivers behind both being the core margin for hardware and service I see really that we're going to hit peak on those early 2025, but continue to see growth through 2024 on the percentage margin from both our hardware and our service and stabilize on really in 2025.

[Operator]

The next question comes from Doug Taylor with Canaccord Genuity.

[Doug Taylor, analyst]

A lot of revenue growth highlights to talk about here. I'd like to focus on the net dollar retention rate, which was again impressive, almost 130% in the quarter. Pricing increases obviously is a big factor there. I believe, Shane, in your prepared remarks, you mentioned a number of other factors, including increased feature uptake and expanded devices within existing customers. The question is can you expand a little bit on what the relative contributions are from some of these factors with the goal of better visualizing the durability of this net dollar retention performance after the effect of the pricing increases you put through subsides here?

[Shane Grennan, executive]

This is Shane again. I think the durability is strong. We forecast higher net dollar retention for the next year. I think we still have a lot of room to grow there. The pricing increase is because we have a lot of contracts that are multiyear. Pricing increases actually take a few years to roll through the entire thing. So there are still more gains to be made based on the pricing increases. Feature uptake is, I'd probably say, if you had to rank these in order, it's an expansion of devices into existing large clients is, number 1#, pricing increases is #2 and feature uptake is the third largest contributor. And from an expansion standpoint, we have a lot of great logos, a lot of great businesses we do business with. And in many of those, we don't have full penetration yet. So a big part of this and a big part of the reason we're going to be able to grow the NDR over the next year is just continued penetration of those large clients.

[Doug Taylor, analyst]

Just to put a finer point on that. Are you saying you're expecting the NDRs to continue in the same range as they are or to actually even potentially increase further from the levels we've seen in the last couple of quarters?

[Shane Grennan, executive]

I think we'd say like very modest growth. The rate of increase will decline. I think we've made significant advances in how we run this part of the business over the past year. So I will say I want to temper expectations a little bit, I'd say modest growth on that.

[Doug Taylor, analyst]

I'll ask another question on the G6 ramp, which we've been anticipating. You've spoken about the pipeline building pent-up demand in previous quarters, particularly with the features that you've added. Could you maybe just discuss the contributions you've seen to date and whether some of the previous targets in terms of the number of devices you expect to have live and active in the market are still relevant from where you sit today?

[Shane Grennan, executive]

Contribution to date has been very modest, say, frankly, we're behind where we thought we would be on this, but the product is very strong. We are seeing that uptake. So we had our first couple of large wins with the G6 last quarter. So really, again, cements the value proposition here, and it's all just about delivering on that value proposition as we go forward. So we'll see higher contribution throughout the year, but the primary products for us will still continue to be the G7 and the EXO in terms of revenue mix.

[Doug Taylor, analyst]

One last question for me. The securitization facility, you've been pretty static with the amount that's been taken up of that or use of that facility. I believe at the outset, you expected to use that to closer to $20 million, I think it's a $10 million right now. Is there anything we should take away from that? Is there anything deliberate there in terms of your use of that facility or the uptake of lease-based purchasing versus outright purchases?

[Shane Grennan, executive]

Doug, it's Shane here. So yes, you are correct. This is a key part of our cash management strategy at Blackline will continue through next year to be that. In terms of the uptake in the period, it does vary period to period. I would say the only thing I would add there is are these customers, whether they come on a new lease customer or whether they're renewing the payment work, different legal contractual obligations that they go through and that we have to satisfy with our securitization partners at CBV [indiscernible]. So that is one of the criteria that we navigate as we go through the funding requirements. Our strategy is to optimize that to the lowest as we can in each period, but there is fluctuations period-on-period based on some of the contractual paperwork that has involved between our customers, ourselves and our Viking partners.

[Operator]

Next question comes from David Kwan with TD Securities.

[David Kwan, analyst]

I just want to clarify a couple of the questions asked earlier on the call. First off, you guys related to a few larger deals that you were expecting in Q4 that got pushed out. I assume they're still in the pipeline and they haven't been lost? First question. And then secondly, just as it relates to customer buying behavior, it sounds like there hasn't been any changes there. There's still some strong demand. Have you seen though, any changes in particular as it relates to your energy customers, just given the softening pricing environment?

[Shane Grennan, executive]

We haven't seen any softening again, we keep an eye open for that because there may be ways we need to react when we start to see that come. So we do keep a close eye on that. So we haven't seen any of that softening yet. Frankly, I've been expecting this for 6 quarters. I think I've been really like vigilant about watching for signs of recession for a while, but we're still not seeing that in our customer base. Not entirely sure what Q2 and Q3 hold as the price of oil might go up or down. And then to your question about the deals that moved from the pipeline in Q4, they primarily moved into quarters 1 and 2. So we'll see some of that land in Q1 here and then some of those did move into Q2. I wouldn't say that that's an economic softening that was things that have come up late in the sales process with specific large clients that are just taking a little bit longer to close, but still strong demand.

[Cody Slater, executive]

I think I'd add just one thing, a couple of those orders to go up pushed out they actually being part of the time delay is that the orders are looking to be larger than we were anticipating to be initially something gets larger, it gets more complicated. You'll see some of that I think in some of our international world as we go forward here. But nothing that indicates anything but, as Shane’s point, a really strong looking pipeline-for the year ago.

[David Kwan, analyst]

And one other clarification. Just you commented as it related to the increased sales and marketing expenses, commissions being paid to distributors for sound like a couple of large leasing deals. Can you quantify that?

[Cody Slater, executive]

If you look at it quarter-on-quarter, the increase in distributor commissions was close to $400,000.

[David Kwan, analyst]

Last question. Interesting, you talked about a little 40 target exiting this year, which I think would be pretty impressive, particularly given your hardware mix. Can you maybe talk about how you see that balance between organic growth versus margins? Do you think you can maintain your north of 30% organic growth this year?

[Cody Slater, executive]

We really wanted to focus on that Rule of 40 internally here. You're right, it's a big goal from a software standpoint. If you're looking at hardware-enabled SaaS, maybe even more so, but we highlighted the growth we've already done towards that. But it is that point of that balanced growth. It's the point that we're looking at both the increased revenue growth going forward in that 30% range moving into the strong positive EBITDA numbers. And that gives us the opportunity to balance that focus between our costs and our growth getting towards what is a pretty significant target for the company.

[David Kwan, analyst]

So I assume to get to that target, you're forecasting 30% organic growth and EBITDA margins in somewhere in the single digits.

[Shane Grennan, executive]

The nice thing about the Rule of 40 is that you can look at a range there, revenue growth can be from 30% to 35% and EBITDA from 5% to 10% kind of thing. And you're in that rule of 40 base. And that's one of the reasons we want to focus on that, not just so much a single point number. But really, I think it's a better metric for looking at the performance of the company.

[David Kwan, analyst]

I'm just trying to get a sense of exiting the year. I know Q4 is seasonally stronger, but did you think that you could get to double-digit EBITDA margins exiting the quarter, understanding that Q1 of, I guess, 2025 might come in below that just because of seasonality?

[Cody Slater, executive]

Again, when we're talking about the rule of 40, we're really talking about exiting with that, so we're talking about Q4. And again, I'd say the Q4 EBITDA numbers we're talking about will be in between that mid-single to double to low double, and the growth will be from the high 20s to the high 30s side then.

[Operator]

The next question comes from Frederic Bastien with Raymond James.

[Frederic Bastien, analyst]

Congrats for steering Blackline on the right path to profitability last year. Lots of inflated digest from this call already. But Cody, as you look forward to the next 12 months, what would you say are the 3 priorities that would rank highest on your list, be they financial, operational or strategic?

[Cody Slater, executive]

I think to me, it starts with that context of balanced growth and we use that term internally, maybe a little differently than other people because balanced growth for us still means pretty high. We're still talking high targets for growth, but balancing that against really strong cost controls going forward. A little bit more investment as we get towards the end of 2024 into driving that 2025 inside the company that comes across all the aspects of what we're doing. If you go back a few years, one of our biggest goals was always exposure and getting people to understand what the business was. When we launched the G7 product, we were doing $11.7 million a year in revenue, nobody knew who we were. Nobody knew what the G7 was. Nobody knew it connected safety was. Today at 100 million we're one of the biggest players in the industry. So that shift that focus and it really becomes much more business operational metrics that we're really looking at here. Again, a balanced top line growth, balanced cost base. And we had some very significant new product introductions that are happening towards the end of the year. From a competitive standpoint, we don't want to get into real details there, but there's some interesting new drivers that are really -- this year is the focus not only on where are we going to wind up in 2024, but what's the trajectory into 2025?

[Operator]

The next question comes from Rajiv Sharma with B. Riley.

[Rajiv Sharma, analyst]

Congratulations on your solid progress. I had a question on -- I just wanted to clarify in terms of the top line growth, you expect top line growth for the year in product and services, both and if I understand correctly, your margins would likely keep rising on the product side. And there is some room in services as well to peak in '25. So did I hear it correctly that we think EBITDA profitability would be in the second half only and about 5% to 10% for the overall or EBITDA margins or in Q4 or in the second half? I want to understand that.

[Cody Slater, executive]

A couple of things back as there. Yes, we do expect margin expansion to continue. There will be some variability in that depending on product mix, et cetera, on the hardware side. But again, peaking at the high end of the 30s getting really in 2024 and then a little bit more movement up into 2025. Service, we'll see a little bit more increase through the year. Again, there's some potential for variability enough. But really, as those price increases roll through to Shane point on those multiyear contracts that alone will help drive some of those numbers. When we're talking the EBITDA positive numbers of that 5% to 10% range that is Q4, not the year. So we're looking at a positive year overall. But really, the real impact you're going to see is as the company scales towards its traditionally stronger second half though.

[Rajiv Sharma, analyst]

And in terms of the infrastructure build and related OpEx, do you expect more increases? Or is there more of a sales infrastructure to be built out in different parts? Or are you pretty much done there?

[Cody Slater, executive]

Really, the growth you're going to see there's some movement inside in different aspects, but there will be inflationary growth across the board. And then from a sales and marketing standpoint, the drivers you're going to see are our increased revenue drives an increased commission line. And there will be a point where we're starting to invest a little more into that as far as adding people down the line, but nothing that's dramatic in any context.

[Rajiv Sharma, analyst]

And then geographically, I know Canada and U.S. did really well. Europe was kind of flat. Do you expect growth in that area and also any specific industries that are not experiencing this continued growth or are slowing down? I hear there's not much of a slowdown, but any specific areas you see that are less growthy.

[Cody Slater, executive]

No, not right now. I'd say we see growth in a lot of the different markets that we serve. One thing that we are focused on is when we have success in the vertical market in one region, we're getting better at taking that success and rolling it into that same vertical that's in a different region and it changes in buying patterns. Like for example, we've been successful in the water business in Europe for a long time. But in North America, the business looks completely different in the water and wastewater processing. So we try to take the learnings into North America. But fundamentally, it's a very different business here. But we are seeing some new successes in natural gas transmission around the world. So I think that will become another really strong market for us. That's been strong in North America for a while, and we'll see that growth in the rest of the world. To the question about regional growth, the United States had 89% growth. That's phenomenal growth over this past year. Europe was a bit softer, but the sales team in Europe was a bit smaller this past year than it was before. So you'll see some rebuilding of the sales team in Europe, and then that should drive strong growth again over fiscal '24.

[Rajiv Sharma, analyst]

And then my last question is on the G6. Can you talk about the contribution to the overall sales mix? Could you quantify that? Is that less than 5%, less than 2%. And then how are the margins hanging out with you and also about the outlook for G6? Could you quantify that possibly for the year?

[Cody Slater, executive]

If we don't give exact product breakouts, as we said earlier, the G6, they got took longer to get able to serve every aspect of that customer's gas detection needs. Again, that's where G6 is going to be truly successful in 2024.

[Operator]

The next question comes from Martin Toner with ATB Capital Markets.

[Martin Toner, analyst]

My questions have all been answered. Thank you very much.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Cody Slater for any closing remarks.

[Cody Slater, executive]

Thank you, operator. And again, I would just like to thank everybody for their attention today and their support through the year. This has been a pretty fundamental year for the company, which has driven us into a position that makes us look very, very forward to 2024 and having an even more exciting call a year from now. Thank you very much, everyone.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.