Blackline Safety Corp.

Welcome to Blackline Safety's fiscal third quarter results conference call. This conference is being recorded. I would now like to turn the conference over to Scott Boston, Vice President of Finance. Please go ahead.

Welcome and thank you for joining us. Today we will be discussing our fiscal results for the third quarter ended July 31st, 2023, which were issued before market opened this morning. With me today is Cody Slater, CEO and Chair of Blackline Safety Corp., as well as our CFO, Shane Brennan. I will turn the call over to Cody in just a moment for an overview of our third quarter. Following that, Shane will discuss the financial highlights of the quarter in greater detail. Cody will then 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 in the company's CDAR 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 CDAR. All dollar amounts are reported in Canadian dollars unless otherwise noted. With that, I will now hand the call over to Mr. Slater.

Thank you, Scott. Good morning, everyone, and welcome to Blackline Safety's third quarter 2023 conference call. I'm pleased to share today Blackline's third fiscal quarter results, our 26th consecutive quarter of year-over-year revenue growth. These results demonstrate the successful execution of our plan to deliver positive adjusted EBITDA through revenue growth, margin expansion, and cost disciplines. We saw revenue growth 34% over the prior year, while incurring 18% lower operating costs. Blackline also achieved the highest ever gross margin for the company at $13.4 million, which was driven by product margins of 29%, their highest in over two years, and continued strong service margins of 75%. We also exceeded our target for the key metric of net dollar retention, reaching 125% one quarter ahead of scheduled. This drove our annual recurring revenue, or ARR, to $47 million, up 43% year over year. Our growth combined with our continued cost discipline led to an improvement of $7.7 million in adjusted EBITDA compared with the prior year quarter. The past year has seen Blackline improve every single financial metric as we continue to deliver value to our growing list of customers through our unique and innovative product, data, and communication services. With our improving margins, growing ARR, and decreasing cash burn, we exited the quarter in the strongest financial position ever, with total liquidity of $25.6 million in our cash, short-term investments, and operating facility, and $50 million available on our lease securitization facility. As we continued to win market share, we saw 26% hardware revenue growth year over year, taking business from our competitors and expanding the connected safety market to our industry-leading products and services. In Europe, we saw growth in the water, wastewater, and utility sectors, which led to a 55% revenue increase for that region. Other significant global wins include several orders across the Middle East, totaling $1.3 million in total contract value, and a deal worth $3.2 million to protect 1,000 workers for a large energy company in the U.S. Permian Basin. We continue to see strong customer interest in the G6, especially with our soon-to-be-released enhanced feature levels launching as Protect and Protect+. These feature sets are driving customer adoption as well as higher service revenue. As expected, we have recently started to see the first large opportunities emerge as we demonstrate these enhanced functionalities, illustrating again how data and communication are central to the way that Blackline differentiates its fully connected solutions. I will now turn the call over to our CFO, Shane Grennan, to discuss our fiscal third quarter results and financial position in more detail.

Thank you, Cody, and good morning all. As Cody mentioned, we achieved our 26th consecutive quarter of year-over-year revenue growth of 34%, generating total revenue of $24.8 million. This includes $11.3 million in product revenue, which increased 26% year-over-year. The increase in the current year reflects the past investments in the company's expanded sales network and global sales team with continued strong demand generation and sales development activities. Product growth margin of 3.3 million more than doubled in the third quarter thanks to the growth in revenue and an increase in gross margin percentage to 29% from 17% in the prior year period. Product margin increased sequentially for the third consecutive quarter as we began the rollout of a secondary pricing increase and saw benefits from increased throughput from our expanded production facility where we have enhanced capacity and process automation. Service revenue during the quarter increased 41% to 13.6 million, our second consecutive quarter with greater than 40% growth in this segment. Software services were a major contributor to this growth of 41% year over year which also drove ARR growth of 43% to 47 million. Newly activated devices contributed to year-over-year growth of 1.4 million a quarter, and net service increases within our existing customer base contributed 2.4 million. This resulted in net dollar retention of 125%, achieving our Q4 FY 2023 target one quarter ahead of schedule. 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, including Blackline Safety Operations Centre, personnel monitoring, two-way voice, and push-to-talk, all contributed to this remarkable number. Our rental business also continues to generate a robust growth, with revenue increasing 35% from the prior year to 1.1 million. Rental revenue was slightly down from the second quarter of 2023, with Q3 being a slower season for rental projects. We expect to continue our strong year-on-year growth in the rental business in the fourth quarter, as well as fiscal 2024, with the rental team having expanded to cover Europe and the Middle East regions, where there's huge demand for a connected area and wearable monitors for three- to nine-month projects. Our service gross margin percentage continued to be strong at 75%, generating over 10 million of gross margin for the quarter. We expect to see incremental margin improvements in Q4 and fiscal 2024 as we increase our penetration of value-add data and communication services for our customers. Our total gross margin percentage came in at 54%, yielding $13.4 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 the rollout of our pricing increase. 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. Our European market represented our largest growth region, improving 55% from last year's Q3. as our sales team secured several major wins in this region. The U.S. continues to be our largest market and demonstrated strong growth at 35% from the year-ago comparable period as we leveraged our established sales network in the region. Additionally, our Canadian and rest of world markets were able to see year-over-year increases of 19% and 5% respectively as we continue to have excellent product wins and strong renewals across these regions. Shifting now to operating expenses, our total expenses for the quarter were 20.1 million, which was down 4.5 million, or 18%, compared to our expenses of 24.6 million in the prior year quarter. Excluding impacts of foreign exchange, this was the sixth consecutive quarter our black line has reduced its total expenses as a percentage of revenue. General and administrative expenses decreased 8% from the prior year quarter to 5.7 million, which represented 23% of revenue compared to 33% in the prior year. This decrease was primarily due to reduced legal and consulting costs as we continue to focus on our fixed cost base. Sales and marketing expenses decreased 3% from the prior year quarter to $9.3 million, which represented 38% of revenue compared to 52% in the prior year period. The decrease was a result of lower headcount, contractor expenses compared to the prior year. I would like to underscore that even with this decrease, these go-to-market teams drove revenue growth of 34% for the quarter. Product research and development costs decreased 43% from the prior year quarter to 4.3 million and decreased as a percentage of revenue to 17% from 40% in the prior year period. Salaries, recruitment expenses, and consulting and contractor costs associated with the G6 were all down, with the core development work for that product having been completed. Our development teams are now focused on the next generations of our core products and services, and 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 total $1.4 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 totalled 16.6 million at the quarter end, compared to 18.7 million at the end of the fourth quarter, as we work to improve our inventory turnover while our sales continue to grow. We see inventory continuing to be a source of cash for us over the next several quarters. Our G7 lease programme has a total of 38.2 million, in future contracted cash flows at July 31, 2023, up from $36 million on October 31, 2022. During the quarter, we received proceeds from our lease securitization facility with CWB maximum of $2.6 million and made scheduled repayments of $8.8 million. We expect to see similar advances in repayments in the fourth quarter based on third quarter lease contracts. We continue to have over 50 million Canadian dollar equivalent of availability on the facility as of the end of this quarter, as we continue to use the facility to optimize our working capital. At quarter end, we have total cash and short-term investments on hand of 17.6 million, with 8 million of availability on our senior secured operating facility with ATB Financial, and 50 million Canadian dollar equivalent of availability under the lease securitization facility with CWB Maxim. 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 a positive free cash flow in fiscal 2024. I will hand it back to Cody to discuss our outlook and to provide closing remarks. Cody?

Thank you, Shane. We want to reiterate our goal to achieve positive quarterly adjusted EBITDA in Q4 of this year and for the full year of fiscal 2024. I would also underscore that we have the liquidity and resources to take us to free cash flow in fiscal 2024. It is clear from everything we have discussed today that Blackline is a different, dramatically stronger company than it was a year ago. We've grown to be one of the most significant players in our industry and proven that our business model can successfully take our company through to profitability and beyond, and demonstrated that we have the resources to do so. Everything we have done to date has positioned us to become the dominant player in the multi-billion dollar gas detection and connected safety markets. It is now time to focus on the true opportunity this presents to both our top and bottom line, driving value for our shareholders over the coming years. 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 to date. 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.

Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press a star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue. The first question comes from John Xiao with National Bank. Please go ahead.

Hey, good morning, guys, and thanks for taking my questions. So, Cody, could you give us an update on the G6 and whether it is still on track for delivery in Q4?

Sure, John. As we mentioned in the call, I think the last number of, couple of quarters, we've been working on an updated version of The capabilities for the six that we call Protect and Protect Plus, so the Protect, both of these are really designed to give enhanced feature sets that customers were looking for, really getting more value out of the data. Both are completed through their development and beginning their launch right now into the field, along with the accessories that are also necessary for that, such as the large-scale molten chargers that the Protect Plus, since it uses a lot more data, will have a weeks-long battery life rather than year-long battery life, so you need to have easier methods of charging. All that's completed and coming into market right now. We're seeing the pipeline start to build on that as part of this overall spirit in our pipelines right now.

Okay, thanks. A related question on hardware is, could you comment on of your overall hardware sales pipeline, and how is it going to impact your Q4 product revenue?

Sure. I think one thing most people are probably aware, Q4 is always our, you know, strongest hardware quarter. It's the seasonality in some aspects. And it's just, you know, the fact that the company is growing at the rate we are last quarter, the Q4 is always going to be the strongest quarter. We're seeing a pipeline right now that supports us continuing that, supports us seeing strength really across the whole product range. I'd point to a couple of the markets, what we call our best-in-the-world market, which was a little soft in its growth last quarter. It's going to be very strong in Q4. We saw the beginnings of a return to real strong growth in Europe in Q3 that's continuing into Q4. strong pipeline across the portables and across the area monitors, really throughout all of our regions right now.

Okay, got it. Last question is on modeling. In terms of your total operating expense for Q4, should we expect the total cost to be, you know, relatively flat compared to Q3?

John, that's correct, yes. That would be a fair assessment.

Thank you. I'll pass the line.

The next question comes from Ronan Anantharajah with ATB Capital Markets. Please go ahead.

Thanks. Just had a question on customer behavior. Have you guys noticed that customer behavior has changed over time and our customers being a little bit more cautious, which could lead to longer lead times?

You know, we're going to actually say a little bit the opposite, that, you know, the penetration, the depth of experience we have in the different vertical markets now just adds strength so that the customer, what we see is less desire for customers to treat us as a bit of an unknown. We're in the markets. We're being used by their competitors or people in their same industry. or a lot of our expansion is inside our current customer base itself. So really, I think the shifts, if we're seeing a shift in the market, you certainly have seen a shift in the last year in strengthening in the oil and gas space with the strengthening of WTI pricing, which maintains its strength right now. And penetration into some new verticals is starting well. We mentioned that a little bit in one of our press releases recently about the fire and hazmat world. So I think as we become more of the industry standard for connected worker, which we really are in the context of the world of gas detection, I think it's a bit of the opposite. We see shorter development times to bring a lead to what we call a commit level, and we see that continuing in the future.

Perfect. That's great, Colin. And just another question on just your net dollar retention. Last quarter, you revised your target up to 120, and then now you guys are at 125. So do you guys have a new target, or do you see where NDR could potentially go?

You know, we're really pleased, because I think that's a huge number to look at, 125. Those are industry-leading kind of numbers in any world. I think internally what we really like about that is just how much it reflects on the customers and how much customers value the services we provide for them. That's what is really driving that. And it's that strong customer retention, that growth in net dollars, customers adopt new units, and as they adopt new services, the core real growth is reaching 125. We did that faster than we thought. I think you'll see similar numbers going forward, but not a similar level of growth going forward.

Perfect. That's great. Thank you. I'll pass the line.

The next question comes from Jason Zandberg with PI Financial. Please go ahead.

Hey, thanks for taking my questions. First of all, I just wanted to get your comment on you had a very strong sales quarter in Europe. I just wanted to get some color if I could on on those strong sales during the third quarter?

Sure. I think what you're seeing really is just the work that's been done over the last year in Europe with some shifting in our sales structure and our approach to markets there. And we see that as really the tip of the iceberg there for Europe. They've done a good job of getting themselves into the position where We're now seeing visibility in our European pipeline that shows that kind of, you can see that kind of growth going forward. Still a lot in water, wastewaters, definitely good strength, good strength in addition from current customer base. And yet it's just a pretty broad, the European market's a little different to us in that it's not, there's less oil and gas penetration within the market in Europe, but it's a broader industrial base and, you know, seeing a real strength there across the board on the product space. And we're going to start seeing that in the rentals in Europe as well, too, and the rentals in the rest of the world in the Middle Eastern market as we put some investments into there. So, you know, turning that all up, we're seeing that the results of the work the team over there has done in the alignment here with the teams here, you know, globally,

Okay, no, that's great. And my second question just relates to your ARR. It was a nice jump this quarter to $47 million, you know, quite impressive given, you know, where you've been trending. This is definitely a step up, a step change. Just wondered, what's your outlook on your annual recurring revenue from this point forward? First of all, what was the reason for the jump? And then second of all, what is your expectation on the growth of this number moving forward? Thanks.

Hey, Jason, it's Shane here. So yes, we did have a very good move in this quarter. We were 11% sequentially from our second quarter through to our third quarter. Reasons for that were expansions more high-level service plans that were within there, as well as new device sales taking place within the previous periods and those service plans coming online in the third quarter. Going forward, it would certainly be great to have an 11% increase sequentially, probably something that may be more modest from a modeling perspective on a go-forward basis. But yeah, it's fantastic to have that 47 million number up 43%. and where we were at this time last year.

That's great. Thanks very much.

And the next question comes from David Kwan with TD Securities. Please go ahead.

Hey, guys. Just wanted to get back onto the G6 here. Obviously, you had a bunch of customers that were looking for more G7-like features in the G6 that you guys have been working on and accelerate the product roadmap so could you give us a better sense on how we should think about the ramp in the g6 understanding that you're kind of launching it right now and to what extent there might be some pent-up demand or whether we're still going to need this going to be somewhat similar to the g7 launch you know customers already want to go through pocs and stuff like that and then maybe see more of a ramp in in a couple of quarters

I think it'd be a little bit of a mix between the two. It's a bit more of the latter, but we have customers who've been waiting for some of those enhanced feature sets, particularly the higher level of data and visibility of workforce that we can provide. So we're going to start to see a ramp in shipments in Q4. But I think the real pipeline build is as we get those in three major trade shows at the end of this quarter. Our biggest really in the year in both Germany, Middle East, and North America. And that will be a core focus of that. And I think that will really start to build the graph we're really looking forward to next year, you know, for Q1 and Q2 going forward.

That's helpful. Thanks, Cody. And maybe a couple of questions for Shane. Just on the receivables, that's continued to trend upwards. I think it's up almost over double year-over-year versus roughly a one-third increase in the revenue. Can you provide some color as to what's kind of going on there? Like, you know, it clearly seems like customers are taking longer to pay. So how much of a concern is that? And I also notice, I guess, the loss allowance You know, it's still relatively small, but that, you know, jumped significantly since the end of last year. So, I'm looking for some color on that.

Sure, David. Yeah, we were at overall $35 million at the end of July. That was $30 million compared to April. Obviously, you referenced the greatly increasing revenue numbers over the, you know, over the periods that we've had. From a day sales outstanding perspective, we are higher at our July quarter end as compared to, say, our April quarter end. A lot of that is to do with the timing of sales and why they happen within a particular fiscal quarter. In our July quarter, we had larger proponents of our sales taking place within the last month of the period. we're at from a provision for potential bad debt perspective. We calculate that in accordance and there's no unusual items within there that's from an outstanding or concerning point of view from my perspective. So overall, it is a larger number at the end of July, but it has been actively managed in terms of our cash receipts on a continuous basis.

I appreciate that. Yeah. I didn't know whether you just had a lot of sales late in the quarter. So it has increased over the last couple of quarters, kind of, I think it's roughly about 5 million a quarter. So I don't know if it's just the last few quarters, you've been getting a bunch of sales towards the end of the quarter or if there's something else going on.

Um, it does happen, David, that there are sales at the end of the quarter. Again, our revenues have continued to increase, you know, each, you know, you know, through, through the year Q2 and Q3 are a little static, but, uh, That is the status .

And how should we look at that going forward? Like, do you, should we expect a reversal in the DSOs correspondingly to come down and, you know, hopefully as early as Q4, if not, you know, early next year?

Yeah, certainly, David, I would like that. that we obviously work on. But I would say it is dependent on when sales fall within a particular period and when they can be brought in within our general credit terms or not.

Yeah, I just was wondering, because typically, obviously, with the Q4 being a season-stronger quarter, that your sequels have usually jumped, not surprisingly. I was just wondering whether, you know, given the increases that we've seen in the receivables so far this year, like, should we expect Q4 receivables to be, you know, increased, maybe not to the same extent as we've seen in prior years, but, you know, whether it increases a little bit or maybe stays flat, or should we can, you know, work on the receivables that are already outstanding?

I would think, and Cody's, you know, made a reference already to pipeline for Q4 that's there, so it wouldn't be unexpected that it would be a Q4 larger receivables number than, say, Qs 1, 1, 2, and 3.

Okay. Okay. Last question. Just on the inventory side, it was down a bit, so helping offset that improvement or increase in the receivables. And I know you guys have made some changes there in terms of kind of delivery times and whatnot. Is this kind of a level that you feel comfortable based on the sales trajectory where, you know, based on the inventory levels that you'd like to hold, or could we see that number start to trend up again?

Sure, yeah. So we ended our July quarter end at $16.6 million in terms of inventory. That was down from $18.7 at the end of the fiscal year. To answer your question, yes, we would like to see how we approve our terms again on that as we go into the fourth quarter. So we would like to see can we see that be a source of cash again in our fourth quarter. Okay, perfect. Thank you.

The next question comes from Gabriel Leung with Beacon Securities. Please go ahead.

Good morning, and thanks for taking my questions, and congrats on the progress. Just got a couple of questions. First, just going back to the EBITDA guidance, EBITDA going positive in fiscal 2004, with operating expenses being relatively flat, expected over quarter to quarter, I guess services revenue is relatively predictable. It would imply a relatively big jump in hardware revenues to get to that positive milestone next quarter. So I'm curious, what sort of visibility do you have into hitting those hardware revenue milestones this quarter? And is any of that predicated on some maybe some chunky orders that might have to wait until sort of the last week of the quarter to close out?

A couple of things I wanted to add first before talking about the pipeline. The other thing you're going to see in Q4, we expect to see in Q4, is a continued expansion of our gross margins. You've seen that as the hardware's moved from 17% a year ago to 29%. The service margins moved up into that 75% range. We see some increase in the service in the gross margins, particularly hardware in Q4 is our anticipation based on volumes and product mix. You'll see a strengthening in the rental program as well too. Shannon noted that rental was actually down Q3 from Q2. That's a bit of a seasonality. The Q4 is a strong quarter. We have good visibility of that returning to very strong service channel. And then when you look at the product side, you know, we have good visibility within our pipeline of reaching the targets that we need you to hit that EBITDA number. You know, there's some decent sized orders in there. Now, there's no one order that makes up, you know, a third of the number or some massive portion of the number, but there are, you know, there are large scale orders, obviously, within that. There's, you know, risk within those, whether they slide or don't, or, you know, slide out We have a strong view of the pipeline going forward that gives us confidence that we can reach those numbers. I think the other question in that becomes supply chain and the ability to ship everything that we have incoming in the orders. That's another challenge that we're actively managing as we look to what is always our largest quarter. Without getting into details, there's always supply chain challenges, but we believe those are well managed for the quarter as well.

Thanks for that. And secondly, just on G6, Cody, I mentioned you've obviously got a much clearer line of sight to some more material purchase orders on the G6 side now that the features functionality are completed. And I'm curious whether you've seen any change in behavior from your traditional competitors in this space now that you are getting closer to potentially signing a large PO on the G6 side, whether you've seen any changes specifically around pricing and whether it might have gotten a bit more predatory in terms of the pricing with the imminent release or launch of your product.

It's an interesting question. I think there's been a couple of situations where we've seen competitors actively marketing their low-cost products, frankly, the low-cost pricing. But, you know, not targeting the kinds of customers that we're looking at there. The ones that are looking to buy the six are the ones that are looking for that higher value, and most are trending towards looking at our enhanced service level being at Protect Plus, which actually it's, you know, a significant price increase over the original, you know, core launch of the G6. So, you know, we don't see that kind of predatory pricing. doing anything but damaging our competitors' margins and really doesn't hurt our market, it's not our customer.

Gotcha. Thanks for that. Thanks for the feedback and congrats on the progress. Thank you.

The next question comes from Raj Sharma with B Reilly. Please go ahead.

Yeah, thank you for taking my questions. Solid quarter, solid results. Congratulations. I just wanted to understand a couple of things. Just the cadence of the securitization facility and the levels that you see up-down during a quarter, and also relevant to that, the percentage of the leased versus outright purchases if you can give more color on that. And what level of the securitization facility do you see or see, you know, the balance on it in the quarters and the year ahead?

Rajesh Jain here. So, yes, so our, you know, lease securitization has been utilized now. It's been extremely successful for us from a working capital and management perspective. The usage that we had during our second quarter, from a third quarter perspective, the lease was probably a little lighter than some of the previous quarters that we've had compared to our second quarter and other quarters of the prior fiscal year. The uptake of lease, again, it's customer-dependent in the period. That's what capital allocation decision a customer wants to make in terms of them buying the find the devices through bundles plans or whether they wish to do it through a finance lease. From a look-forward perspective, the numbers that we have for Q3 would be good indicators for what Q4 and forward may be, but I will just caution that it is dependent on the extent to which customers enter into finance leases through the period as to what we can finance. Canadian dollar equivalent of 50 million available for that facility, which will be back submitted at the end of July. We'll continue to actively utilize that facility on a go-forward basis for those customers that we will put through that securitization program. And we look forward to continuing to manage our working capital effectively through using that tool and program.

Yeah, thank you. I wanted to kind of understand the securitization facility. So the percentage of the leased is what of the total in products? And you also... I'm sorry, Raj.

I think you broke up the last piece of your question there.

I'm trying to understand the leased revenues versus total and how that plays in... the use of the securitization facility and how that would play in with the, and how should we kind of look at that modeling when you look at also the accounts receivable balances and what level of AR could we expect sort of, you know, in terms of DSOs over the years, how that plays with the securitization facility?

Yeah, sure, Raj. So, you know, by way of indicator that the percentage that could go through lease could be low teams up to sometimes 30 30 plus percent with it within a quarter depending on what the customer decision is so um you know from from your modeling perspective you know you can take an average of somewhere in there look at what this said the product sales within the period is and and then and then factor off of that in terms of what would be financed through that program you know our preference is to to fully utilize um you know where possible customers within north america which is where the lease program is, securitization is centered for those North American customers, to put as many as possible through that program to aid us. So hopefully that benefits in terms of your model planning.

Great. Thank you. And then just moving on to the product gross margins, you are – expecting the expense levels to stay constant here, the overall operating expense levels. And then the gross margins on the product side, did I hear from Cody that you expect significantly higher product gross margins in Q4?

Yeah. Because of the volume. If you've looked at it throughout the year, we've gone up every quarter, quarter on quarter in those margins. Q4 is our highest volume quarter. There's also a price increase that took place in June that will impact this as well too. So we've talked a lot about the price increase we did a little over a year ago of 15%. We did a price increase of 6% in June of this year. So that's going to also help impact those margins. So yeah, you should look to see a strengthening of the hardware margins. a slight strengthening on the service margin, I'd say, as well, because of that price increase and just the volumes at the end of the day.

Great. Thank you. That's it for me. I'll take it offline.

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

Thank you, operator. I'd just like to thank everybody for participating today and wish you all a good day.

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