Q4 2021 Evolv Technologies Holdings Inc Earnings Call
Good afternoon, and welcome to the <unk>.
<unk> technology fourth quarter earnings results Conference call. Currently all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, we ask participants to limit themselves to one question and one follow up question as a reminder, ladies and gentlemen, This conference is.
<unk> recorded I would now like to introduce your host for today's call, Brian Norris, Vice President of Investor Relations for evolved technologies. Please go ahead Sir.
Thanks, Alicia and good afternoon, everyone and welcome to the call.
I'm joined here today by Peter <unk>, Our Chief Executive Officer, and Mario Rossi, Our Chief Financial Officer, and Chief risk.
Good afternoon. After the market closed issued a press release announcing our fourth quarter results.
Sure.
The press release is available on major news outlets as well.
IR section of our website. Please note that during this afternoons call, we will be referring to a company investor presentation, which can also on our Investor Relations website.
As highlighted on slide two of today's presentation. During today's call. We will make forward looking statements within the meaning of section 27 of them.
The jewelry box at 1933 21 E of the Securities Exchange Act of $19 34.
The safe Harbor provisions of the US Private Securities Litigation Reform Act.
The link to our current expectations and use of future events.
All forward looking statements are subject to material risks uncertainties and assumptions some of which could be on that actual events or financial results may differ materially from those forward looking statements as a result of it.
A number of risks and uncertainties, including without limitation the risk factors set forth under the caption risk factors in our prospectus filed with the SEC.
For 2021 and in other documents filed with or furnished to the SEC.
Yeah.
Forward looking statements made today represent our views as of March 14 2022.
Although we believe that the expectations reflected in the forward looking statements are reasonable you cannot guarantee future results levels of activity.
And that's in events and circumstances reflected in the statements will be achieved will occur.
Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.
Our commentary today will also include non-GAAP financial measures, including adjusted gross profit adjusted gross margin adjusted EBITDA, which we believe provide additional insight for investors in evaluating ongoing operating results and trends. These measures should not be considered in isolation.
Or as a substitute for financial information prepared in accordance with generally accepted accounting principles reconciliations from GAAP to non-GAAP metrics for our reported results can be found in our press release issued today and in the accompanying investor presentation.
Finally to provide investors with incremental insight transparency today, we will begin sharing two additional performance metrics typical of a SaaS business <unk> and RVO.
<unk> or annual recurring revenue represents our subscription revenue as well as the recurring service revenue related to purchase subscription small lifestyle.
Great.
<unk> or remaining performance obligations reflects the difference between contract value and revenue recognized installed units as of the end of this quarter.
<unk> RVO should be viewed independently and not as a substitute for or forecast.
Revenue for our revenues.
Please keep in mind, our definition of these measures may differ from similarly, titled metrics presented cycle Cabos.
With that I'll turn the call over to Peter.
Yes.
Thanks, Brian and thanks, everyone for joining us today.
We're pleased to share the highlights of our fourth quarter and full year results as well as our strategy and goals for 2022.
But before we do that let me take a moment here on slide four to remind every one of our mission, which is which is to democratize security makes.
Making venues facilities and people everywhere more secure and making the world a safer and more enjoyable place to work learn and play.
Moving to slide five.
There are powerful secular growth trends that continue to drive the need to digitally transform facility safety and the visitor experience.
The current accelerating trends in firearms ownership.
Pandemic awareness and anxiety are converging and driving increasing focus on visitor safety and the visitor experience.
We know the public is demanding a better way to gather again, they do want to visit venues again.
But they want to do it safely safe from the threat of gun violence and safe from health risks like Covid.
They want to have a frictionless and touchless venue experience and they want that experience to be personal informed and smart.
Moving to slide six.
I believe today's imperative and urgent need is to make everyone in everywhere safer.
It's our shared belief that the pandemic has forever changed the way we live.
How we work and where we play.
That the world has become a more unpredictable and scary place and that with that people have an elevated sense of being xiety about gathering again, and that's not going to change anytime soon.
We know that gun violence in the United States is that historic highs as evidenced by close to 700 mass shoe days in 2021.
I personally spend lots of time in the field listening to our customers and I'm sure about one thing.
They're relying on us on a ball our solutions to help make their opinion safer and their visitors happier.
This is a moment of unique moment as venues and companies are making the architectural shift from analog to digital and evolved is leading the digital transformation of physical security.
As you know evolve develop the first and only AI based weapons detection platform that prevents threats from entering places they shouldn't while preserving the visitor experience as people walk right in at the pace of life.
So our SaaS based subscription model and unprecedented dataset, we can finally, democratize security and make it available to anyone who needs it.
This is our mission at evolved and why I feel so strongly about our business today and about our future tomorrow as the human security company.
The results, we're reporting today reflect that intersection of our mission.
And our imperative to meet the moment, we now have.
Moving to slide seven.
Our fourth quarter results were highlighted by strong new customer acquisition.
The introduction of demand driven product innovations and acceleration with our channel partners.
We reported total revenue of $6 8 million in the fourth quarter up 236% year over year and full year revenue of $23 7 million up 395% over 2020.
As Mario will describe in his remarks, we hadn't adjusted in revenue recognition in the fourth quarter of 2021, as we determine that our SaaS offerings have now taken on a greater portion of our offerings overall value delivered to our customers.
This in turn requires us to ascribe more value to our subscription revenue.
We believe this is a positive transition for our growing SaaS business like ours.
Despite this change we still reported revenues for the year that will be on the top end of our guidance range, while adding greater visibility into our expected forward revenues. We added 84, new customers in 2021, which was seven times the number of our new customers added in.
2020.
We define subscriptions or deployed units as active revenue generating.
Of evolve express under contract we grew subscriptions from 214 to over 700 in 2021, reflecting growth of 229% year over year.
We had no subscription churn in the fourth quarter and have not had any renewal up to yet.
Finally, total contract of orders booked where T. C. D was $17 9 million in the fourth quarter up 201% year over year and was $53 8 million in 2021 up 148% year over year.
Turning to slide eight.
We were honored to welcome more than two dozen enterprises to our customer base in the fourth quarter.
While others in the security screening market site number of pilots or RFP activity. We're grateful to have added 84, new customers in 2021 to bring our customer base to over 200 at the end of the year, our pace of new customer acquisition accelerated throughout the.
A year.
In the fourth quarter, we again saw a broad diversification of our customer acquisition activity.
As you can see on this slide some of our newest customers include DHL, Birmingham rates course Casino Champagne School fall.
All River public schools, Florida Theater, performing Arts Center.
Fox Theatre in Atlanta.
July's Center, the Monterey Bay aquarium, the North Shore Hospital.
In Wetzel, performing Arts Center, and the Woodruff Arts Center.
20% of our T. C. D came from professional sports vertical as we secured another NFL franchise, our fifth pro football team as well as another MLB teams, our fifth professional baseball franchise.
We now have 15% of the NFL and nearly 20% of the MLP are now evolve express customers. We also landed an important opportunity by winning the capital one arena in Washington D C.
Nearly 15% of our T. C V. In the fourth quarter came through K through 12 education market, where we closed six transactions.
We unfortunately saw acceleration in that market immediately following the school shooting in Oxford, Michigan.
10% of our T C D and the fourth quarter came from tourist sites, including the Monterey Bay aquarium and some of the most iconic venues in the United States.
We saw important contributions from the health care market, which includes hospitals and clinics and represented about 10% of our fourth quarter <unk>.
We also saw continued growth in the hotel and casino market, which represents about 10% of our fourth quarter <unk>.
Three other vertical markets each contributed about 10% the T C b in the quarter, including performing Arts centers convention centers and factory warehouses.
Let's turn to slide nine to update you on our go to market efforts, which consists of a direct quota carrying sales force as well as a growing network of channel partners that help extend our reach in certain geographies or vertical markets.
We've been clear about our intentions to scale the company with and through partners and an approach we referred to as channel centric.
Our goal at the beginning of 2021 was to secure 15% of our TCP with partners. We ended up doubling that to 30% strong evidence of both customer demand and partner engagement.
45% of our fourth quarter GCB involve the partner and we're now starting to see transactions close with channel partners without any involvement at all from us.
We are seeing broad activity across three dozen authorized channel partners and several strategic global partners in Johnson controls Stanley Black <unk> Decker and of course, Motorola solutions, where incidentally the number of qualified opportunities in our pipeline more than doubled in the fourth quarter to over.
500 prospects.
Turning to slide 10 highlights the growing separation that we're creating between evolve technology and the rest of the competitive market.
There are several unique elements of the above story, which are highlighted here on the left side of the slide.
We are currently commercially screening more than 20000 people every hour or on average about 500000 people every day.
That volume is important when you consider that we're collecting more than $1 5 million data points for each of these visitors.
Said another way, we're collecting about 750 billion security data points every single day across more than 200 venues and more than a dozen vertical markets.
Simply put we've created what we believe to be the single largest data lake in the security screening industry.
As a result, our customers turn to us to power their digital thresholds.
We're digitally transforming security by and with critical capabilities in such areas as weapons detection crowd assessment mass notification and people analytics.
These capabilities enable us to continually raise the bar of innovation and bring better and better products to the market and in time. We believe this will enable us to optimize average revenue per unit or <unk> and maximize renewal rates as and when customers reach.
The end of their initial SaaS contracts.
By having more data and better products, we believe we're able to deliver a superior value proposition to the market.
We're able to classify grafts based on this unique large and rapidly growing dataset that makes it possible with our advanced algorithms to improve detection accuracy over time.
We believe this enables evolved to deliver an improved security posture, which makes our customers venues safer than ever before.
In addition, we also deliver a superior visitor experience as our customers customers can enter the venue without ever slowing down without ever divesting of their personal items and without ever forming a single file close contact fine.
We strive to deliver significant operational efficiencies that drives up the 70% cost savings for venue operators.
Finally, we're able to provide venue operators with a higher level of valuable data, which are delivered automatically and available on demand via evolve insights or analytics platform to enable our customers to make better security decisions before during and.
After events.
Before I turn things over to Mario.
Wanted to turn to slide 11 to share some thoughts as to some of the near term and longer term drivers of our business, which we believe position us well to fulfill our mission of democratizing security for all.
Several of the near term drivers of the business include the reopening of facilities and that's happening right now.
Facility operators are looking for a new and safer way of welcoming visitors back and certainly evolve express does just that we.
We will look to balance this demand with the impact that Covid has had and likely will continue to have on both our supply chain as well as our ability to access customers' premises to install booked units.
Other near term drivers are expected increases in quota carrying sales executives the increase in quotas for 2022 and the price book increases we have implemented to gain full value for our subscription offering while also offsetting impact that increasing inflation.
As had across nearly every industry.
Another driver is our channel centric strategy, which continues.
To show growing momentum, we're expecting channel partners to be involved in as much as 40% of all opportunities in 2022 up from 30% in 2021.
Switching to some of the long term drivers of the business.
First and foremost the secular demands for strong public safety is more important than ever.
Unfortunately trends in gun islands are escalated not abated.
Second we see a significant long term opportunity for both with existing and new channel partners.
We are making great progress progress and still there is much more to do we.
We expect to benefit from ancillary revenue streams with analytics and digital tools, which we expect will drive average <unk> higher over time, while also enhancing renewal opportunities.
Finally, we anticipate new potential products that can drive deeper penetration of large untapped Tam segments with that let me turn things over to Mario who will take you through our financial results key trends and our outlook for 2022 Mario.
Do you.
As Peter mentioned, we continued to benefit from strong secular growth trends.
Highlighted on slide 13 revenue in 2021 was $23 7 million up 395% year over year.
This reflected strong new customer adoption.
Revenues pro forma for our change in our revenue recognition assumptions would have been $25 million.
This reflects the impact of the adjustment we had in the fourth quarter of 2021 to our standalone selling price assumption.
That change is a result of the recent rollout of the newest evolve express platform and the advancement in the evolve cortex AI software.
This change means that for accounting purposes based on ASC 606, a greater percentage of the value of our customer contracts is allocated to software versus hardware.
This impacts the manner and timing of our revenue recognition for accounting purposes.
Though I want to be clear there have been that have not been any changes to the way, we market and sell our product.
And this change in revenue recognition not been made our revenue in 2021 would have been $25 million instead of the $23 $7 million, we actually reported.
We have included a table with more information in the appendix.
We reported total recurring revenue, which reflects both subscription revenue and the recurring portion of the service revenue of $9 8 million in 2022 2021.
Reflecting growth of 180% over 2020.
We're also highlighting year annual recurring revenue or <unk>, which represents monthly subscription revenue and the recurring service revenue related to purchase subscriptions normalized to a one year period.
At December 31, 2021 grew to $12 9 million up 220% over December 31 2020.
TCP or total contract value of orders booked was $53 8 million, reflecting growth of 180, 148% year over year.
<unk> will convert to revenue as we install evolve express at customer sites.
We no longer plan to guide to CTV, which we believe is not the most useful indicator for performance because it does not consider the growing importance of installation activity.
Finally, we disclose remaining performance obligation or Rps, which reflects the difference between contract value and revenue that has already been recognized for units that had been deployed as of the end of the quarter.
<unk> at the end of the fourth quarter of 2021 was $40 2 million up 200% year over year.
Investors should expect us to regularly report on <unk>, and <unk>, which are indicative of the progress we continue to make.
Flipping to slide 14, we're sharing edition, which is subscriptions deployed as well as ending number of subscriptions deployed.
In time, we would expect to add churn and renewal activity.
However, we have not experienced any churn given our contracts are four years in length.
As you can see here, we added 136 additions in the quarter and ended the year with 703 subscription deployments.
In addition, we ended the year with approximately 128 units in installation backlog.
These represent valid valid purchase orders, which had been included into two CV.
But no subscription and service revenue has yet been recognized.
Deployment has not yet been completed.
It is important to point out that omicron related restrictions.
Either among their customers or among our personnel.
Back at our ability to install units in the fourth quarter of 2021.
As we move to slide 15, here's a deeper look at the trends in <unk> and Rps.
As you can see here on the left <unk> was up 220% year over year in 2021.
This continues to reflect the strong new customer adoption, we are seeing as well as the expanding deployments, we continue to see across our customer base.
On the right you see Rps, which again reflects the difference between contract value and revenue already recognized for installed units as of the end of the quarter.
<unk> grew 200% year over year to $40 2 million.
Also highlighted on the chart on the right is the value of the backlog, which is the value of units that are fully under contract, but are yet to be deployed.
As you can see we had another $10 $6 million of contracted revenue associated with units that had not yet been installed as of December 31 2021.
So in total about $58 million of RPI plus backlog.
Turning to slide 16, I want to briefly discuss our financial highlights.
As previously discussed total revenue was $6 8 million in the fourth quarter up 236% year over year.
For the full year total revenue was $23 7 million.
Up 395% over 2020.
We reported gross margin of 4% in the fourth quarter and 28% for the full year broken down as follows.
Product gross margin was negative 45, 45% in the fourth quarter.
And 10% for the full year.
Our fourth quarter product gross margin was impacted by several one time expenses.
A $1 $6 million impairment related to legacy inventory of our first generation product edge.
A $600000 purchase price variance for product build.
As well as some other miscellaneous onetime charges for about $200000.
In addition supply chain challenges impact of costs as we continued to prioritize availability of finished product.
Excluding these adjustments product gross margin would have been 8% and 28% for Q4, 'twenty, one and fiscal year 'twenty one respectively.
Subscription gross margin was 45% in the fourth quarter.
And compared to 31% in the fourth quarter of last year.
For the full year subscription gross margin was 30%.
Total operating expenses were $22 3 million in the fourth quarter up 128% year over year.
And $60 7 million in 2021 up 115% over 2020.
The primary drivers of the increase were head count additions across the company.
Most notably in revenue generating sales as well as technical talent for our engineering team.
Stock based compensation expense transaction costs associated with the offering.
And a modest impairment charge for the write down of certain assets.
We exited the fourth quarter with 176 employees compared to 62 employees at the end of 2020.
Our loss from operations was $22 million in the fourth quarter up 136% year over year.
And was $54 million in 2021 up 101% compared to 2020.
Finally, we reported net income of $2 6 million.
<unk> <unk> per diluted share compared to a net loss of $9 5 million.
Our $1 $1 <unk> per share in the fourth quarter of last year.
For the year, we reported a net loss of $10 9 million.
Or <unk> 15 per diluted share compared to $27 4 million or $3 seven.
Per share in 2020.
Briefly now on the balance sheet.
We ended the quarter with approximately $308 million in cash and cash equivalents.
About $26 million from the from the third quarter.
This use of cash reflects the fourth quarter Q4 operating loss of $22 million.
The repayment of $5 4 million on our revolving line of credit.
As well as the continuing investments, we're making to build inventory in anticipation of our second half 2022 plant.
Okay.
As we move on to Slide 17, you can see the leverage of our subscription model as highlighted on this slide we have reported we are reporting adjusted recurring contribution gross margin of 80%, which is a record high for the company.
The context recurring revenue includes subscription revenue.
Service revenue for all periods presented.
Recurring adjusted gross profit and gross margin excludes onetime items and depreciation and amortization.
Amortization, which we believe provides a more meaningful representation of contribution margin.
Moving on over the next few slides I want to share with investors. The highlight of our 2020 to business outlook and the rationale and assumptions behind it.
I'll remind investors that these forward looking statements represent our views only as of today.
Starting here on slide 18, our current expectations are for full year revenue of between $29 million to $31 million, which would reflect growth of about 25% year over year.
That growth would have been 58% pro forma for the change in FSP in 2021.
We expect ending December .
December 31 to more than double in 2020.
<unk> 2022 to between 27% to $28 million.
We expect operating expenses to increase to $94 million to $96 million in 2022.
We expect to continue investing across the business, mostly in revenue generating and revenue supporting head count as well as engineering resources to continue to extend our leadership position.
We expect our operating loss to range between $82 million to $84 million in 2022.
Finally, we expect adjusted EBITDA to range between negative <unk> 65, and $67 million in 2022.
Moving on to slide 19, I want to provide some contacts as to our investment priorities in 2022.
Starting with R&D, we're focusing on next generation evolve express to deliver significant cost reductions and drive gross margins higher.
We're also investing in ancillary products designed to drive off of existing clients higher while also enhancing renewal opportunities.
In the area of sales and marketing, we're adding to our number of quota carrying sales executives, which will position us well for growth in 2023 and beyond.
We're balancing this investment with our channel strategy to put us in the best position to accelerate sales.
Turning to G&A, we continue to build the company's infrastructure to manage our reporting and controls environment as well as to support current and future growth.
For example, we are in the final stages of our Netsuite implementation, which is set to go live in the second quarter of 2022.
Finally, we're making the necessary investments and public company initiatives typical of a company of our size.
Turning to slide 20.
We want to share some additional insights into our projected use of cash in 2022.
We expect an elevated cash burn into into 2023, as we ramp up investments and emerge from supply chain constraints.
We expect elevated operating losses in 2002, as we continue build to build our public company infrastructure and to make the necessary investments in sales and marketing.
We expect to meaningfully leverage.
Both investment areas in 'twenty, three and beyond as we further scale the business.
We have not been immune to COVID-19 related supply chain challenges that have persisted over the last 12 to 18 months, which have driven our hardware costs higher.
While we've been able to take advantage of our balance sheet too uncertain cases pre buy certain hard to find parts, we have not yet been able to scale sufficiently to recognize significant purchasing benefits.
We are working on and investing in redesign efforts with the goal of reducing hardware cost by 40% to 50%.
We are continuing our efforts to proactively build inventory to support our growing pipeline and to meet expected demand in the second half of the year and into 'twenty three.
To that end, we expect to end 2002 with more than 250 express units in inventory compared to approximately 75 units in inventory at the end of 'twenty one.
Another important use of cash is of course, the support of our pure subscription customers.
When customers choose our pure subscription model overall purchased subscription.
Model, we are fully funding the equipment cost and retaining the title to be evolve express platform.
We then recover that equipment costs with a higher subscription value over the term of the noncancelable subscription contracts.
We are currently evaluating third party financing sources, which would significantly reduce our cash consumption needs.
Without that program in place, we expect to use as much as 15% to $20 million in 2022 to support equipment cost of our pure subscription offering.
In light of all these considerations. We currently expect to end 2022, with approximately $220 million to $230 million in cash.
Turning to slide 21, I wanted to share with you a few additional modeling considerations as you think about 2022.
We can see we continue to see an impact on installations here in the first quarter of 2022 due to omnicom.
And since installations are the most important element of revenue recognition, we expect that will impact the linearity of both product and subscription revenue in the first quarter.
We expect both <unk> and revenues to further accelerate in the second half of 2022, as we continue to add additional customers and subscriptions.
We expect the mix of installed units to be 70% pure subscription and 30% purchased subscription.
Finally, we're modeling on ending installed base of subscriptions of between 1400 to 500 approximate doubling our 2021 ending sub counts.
Again due to some of the Amazon impact with challenges of installation in Q1, we.
We expect that the rate of installations will accelerate in the second half of the year.
Okay.
With that I'll turn that back over to Brian .
Thank you Mario at this time, we'd like to open the call up for Q&A again, we ask participants to limit themselves to one question and one follow up.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press. The one then zero on your telephone keypad you.
You may withdraw your question at any time by repeating the one zero command if.
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Once again, if you have a question you May press one zero at this time.
And well first go to the line of thought are you all with Cowen. Please go ahead.
Thank you.
Good afternoon so.
Just just to recap.
What would have been.
The potential revenue got but for fiscal 'twenty, two but for the.
<unk>.
Accounting.
Adjustment that that Youre, taking the company through.
Yeah, 22, we Didnt talk about an adjusted number in 'twenty to what we said is if all of 'twenty one had been.
We had used the same SSP assumption that we used in the fourth quarter for the entirety of 2021.
Our guidance would have been a revenue growth of 58%. So if you look in the appendix of the earnings deck.
Can see the the lower revenue number that we're talking about a 19, 7% for 2021, we didn't provide what 2022 would have been under the old assumption.
Got it got it and as we think about fiscal 'twenty to win.
The investments that youre, putting into a into the company.
<unk>.
Typically maybe another <unk>.
Towards the head count but.
How should we be thinking about fiscal 'twenty, two and being from a head count perspective.
Give or take with some sort of a range.
Hey, Charles It's Peter George how are you Peter I'm. Good how are you good.
We hired about 100 people in 2021, so we had a big investment in people and infrastructure.
During the year that we went public our plan for 2022 is to add about 70, 70% to 75 more heads.
So we should be close to.
200 people.
250 people before as we exit 2022.
Got it thank you for that color.
Welcome.
Yes.
And next we'll go to Mike Latimore with Northland Capital markets. Please go ahead.
Thank you yeah.
The diversity of bookings were great this quarter.
I guess in terms of the just the sales environment. What are you seeing from a sales cycle standpoint.
Are things moving quickly slowing relative to six months ago.
Yeah, how are you.
Doing Mike its Peter.
Okay.
Yeah. So I think the last time, we spoke we said that our sales cycle was contracted to about 90 days.
Still there.
Two things changed for us in Q4 and in the beginning of Q1 in Q4, you know omnicom showed up in the middle of December .
We moved from being having most everybody in the office to being fully remote again and unfortunately through our so did our customers.
So our customers well.
We're back home and we saw a slowdown a little bit in PCB, but mostly in the ability to deploy system. So the sales cycle didn't change, but our customers went home.
And it was hard to reach them and of course, when they got their facilities down we couldn't install system. So we ended up deploying 136 systems in Q4, but we left about 100 system in backlog in PCB exiting.
Exiting the year, so we had pretty robust bookings, it's just we couldnt get them install so that's one thing the second thing we did in Q4 and this really talks to the sales cycle.
We mentioned we had a significant.
Investment in the channel in Q4, and they represented a significant portion of our business that slowed down.
Our sales cycle by about 30 days.
Because we don't have direct control of the channel like we do when we work directly. So we're now planning as we go forward through that experience, we're planning on making sure embedded having refined the pipeline can make our plan we want to have four times the pipeline and we want to make sure we have an extra month.
The plan for because of the.
The channel engagement part of the business, having said that you started out by talking about diversification.
We had a great quarter in K through 12 in health care and municipalities places, we weren't traditionally in and the channel helps US open up those markets. So it was a big investment to make in Q4, we know what is going to pay big dividends in 2022.
And I guess a lot of those markets you just mentioned that youre, not really replacing a metal detector or youre kind of going in Greenville.
You bet and so as you know with $20 billion Tam $18 billion Greenfield in all of these markets are places, they're traditionally isn't isn't metal detectors. So 90% of our deals continue to be uncontested. When we have to compete there it's normally a metal detector company.
We like our win rate when we have to compete with that.
Yeah, Yeah, and then just on the.
Accounting change does that does that relate to just.
The purchased subscription model or the purchase subscription and product only model.
So right.
The purchased subscription where we're selling equipment upfront to a client.
Is the one that gets impacted by that.
And Mike just to be Super clear on this this is just this is us following GAAP. This is not about us changing rules. This is this is also adhering to generally accepted accounting principles in the United States and so what we're finding is that a greater percentage of our revenue is attributable to our SaaS offering which is a great thing growth of growing.
Business like ours, and so Thats, what you are saying this is a great thing long term.
Yeah, Yeah, no that makes sense correct. Okay. Thank you.
Okay.
Next we'll go to Brian Rutin bar with Imperial capital. Please go ahead.
Yeah. Thank you very much so I wanted to just clarify the guidance and how you're going to report going forward are you still going to have because you mentioned are have written 29 to 31 million and total revenue and $27 million to $28 million of that.
It is recurring.
Are you still going to have product.
Subscription and services revenue as are all going to be subscription and then other category.
So to be clear, Brian it's not of that at 27% 28 annual recurring revenue is a standalone metric just taking annualized revenue for the last month of the year times 12, right. So December when we expect December subscription recurring revenue to be in.
And annualized that so it's not one as a part of the other the 29% to 31 represents the revenue we generate throughout the year from both a product and subscription will continue to do that there is no change.
At this time.
Okay. Thanks for the clarity that was obvious I appreciate you pointing that out.
And then are you you talk the second part of the question also on financials.
You talk about the first half being weaker than the second half can.
Can we talk a little bit about seasonality I think that you had an extremely strong third quarter or is that how you see it as the peak in the third quarter and then maybe a little drop off in the fourth quarter.
Yeah, I think that's probably a fair statement, we're still very early on obviously, we're learning about seasonality, but just by the sheer number of off days in the fourth quarter and distractions by clients because of the holidays.
I wouldn't be surprised if we have a similar pattern into this year.
Okay, and then in terms of the one time charge that was related to.
The write off of.
I guess it is the first generation of all system.
Roughly $6 million is that correct.
Yes.
It's not that big it was one six.
It's yes, it's basically there the old generation units.
Most of them was based in the U S that we proactively swapped out for clients part of the reason why we did that is because the new units allow clients to have greater functionality on our software platform, so, but as always and we were able to extend contracts as well. So there was a benefit to the company, but short term it meant that we have.
To write off those units.
Okay is there any other older units that could be written off in 2022 or is this all cleaned up.
This is cleaned out.
Okay.
Perfect. Thank.
Thank you very much for answering my question.
Brian you May remember that edge product was our first generation product it with millimeter wave and it was a metered product, meaning you went through one at a time once we introduced express it was our second generation everyone wanted to go to that and so we've allowed them to do that so we have no more right off with that Jenny Yeah, and Brian just to be clear, we do still.
Some of those units in the field. They are about 75 units, mostly international but again, we don't expect to be writing them off we will continue to operate.
The U S was a different decision because of our platform.
Great. Thank you for the clarity I appreciate it.
Thank you and our last question is from Rob Galvin. Please go ahead.
Okay.
Rob It's Brian Norris. Your line is open if you wanted to ask a question on the call.
Rob Your line is open. Please go ahead.
Oh, Yes can you guys hear me.
Yes, yes.
Sorry, I think I was on mute this is Rob Galvin on for Brad Reback. Thanks for taking the question.
I'm just wondering if you expect to raise additional money or if you think that you can get to cash flow neutral with the cash flow neutral with the current model.
Yes, we do expect to get cash flow neutral Rob.
Not only do we expect to do that with <unk>.
The current improvement in acceleration of the business.
But we have a lot of flexibility to raise additional capital or slow the cash burn like the third party financing I talked about for some clients were really kind of at the early stage of evaluating that obviously that might preserve cash for us to do even more things.
But the bottom line is we don't expect to raise any additional capital.
Great. Thank you.
Rob any follow up question I mean, you're good.
No that was it thank you.
Okay terrific and then I'll turn it over to Peter joined our CEO for some closing remarks, alright, we love it we want to thank everyone for joining US today, we're really excited about our performance in 2021 and very enthusiastic about the future of the company. So thank you everyone for joining US we look forward.
On to the next earnings call. Thanks, everyone.
Right.
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