Q1 2022 Evolv Technologies Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the evolve technique.
Allergies first quarter earnings results at this time, all participants are in a listen only mode. Later there'll be a question and answer session and instructions will be given at that time. Please limit yourself to one question and one follow up if you need assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would like now to turn.
The conference over to our host Brian Morris Vice President of Investor Relations for evolved technologies. Please go ahead.
Thank you Dan and good afternoon, everyone and welcome to the call I'm joined here today by Peter George Our Chief Executive Officer, and Mommy levels, Our Chief Financial Officer, and Chief Risk Officer.
This afternoon. After the market closed we issued a press release announcing our first quarter results and our business outlook for 2022.
The press release is available on all major news outlets as well as on the IR section of our website.
During today's call we will make forward looking statements within the meaning of section 27, a of the Securities Act of $19 33.
Section 21 E of the Securities and Exchange Act of $19 34, and the Safe Harbor provisions of the U S. Private Securities Litigation Reform Act of $19 95 that relate to our current expectations and views of future events, including but not limited to statements regarding our ability to meet our business outlook for revenue and profitability.
All forward looking statements are subject to material risks uncertainties and assumptions some of which are beyond our control actual events or financial results may differ materially from those excuse me from these forward looking statements as a result of a number of risks and uncertainties, including without limitation the risk factors set forth under.
The caption risk factors of our annual report on Form 10-K for the year ended December 31 2021.
As filed with the SEC on March 28, 2022, and in other documents filed with or furnished to the SEC from time to time.
The forward looking statements made today represent our views as of May 11, 2022, although we believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee future results levels of activity performance in events and circumstances reflected in those forward looking statements will be achieved or 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 certain non-GAAP financial measures, including adjusted gross profit adjusted gross margin adjusted EBITDA and adjusted earnings, which we believe provide additional insight for investors in evaluating ongoing operating results and trends.
These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
Affiliations between GAAP and non-GAAP metrics for our reported results can be found in our press release issued today. Please note that our definition of these measures may differ consumer literally titled metrics presented by other companies.
Before I turn things over to Peter Let me briefly highlight a few of our upcoming Investor relations activities on Wednesday June 1st we will be in New York for the Cowen Technology Conference on Tuesday June 7th we will be at the Stifel Investor Conference in Boston. If you are planning to attend either event and are interested in meeting with the management.
Team. Please let me know.
With that I'd like to turn the call over to Peter Peter.
Thanks, Brian and thank you everyone for joining us today, we're pleased to share the highlights from the first quarter as well as the trends we're seeing in our business.
As the leader in AI based weapons detection, we continue on our important mission of making everywhere in every one sei for everyday.
We are redefining how people think about security and we are enabling our customers to create a safe and frictionless experience for all of those gathering again.
The secular trends that demand the new kind of security has become the urgent need for our society today.
All exists to meet that need and moment, we find ourselves now in.
We started the year with a strong first quarter results, which we believe position us well to deliver on our full year growth plans.
The key takeaways are as follows.
Revenue was $8 7 million in the first quarter up 27% sequentially and 118% year over year, primarily driven by strong demand in our key verticals and increase in purchased subscription deals and a continuing momentum with our channel partners.
We added over 40, new customers in Q1, a new company record, including key wins at the Charlotte Mecklenburg School District in North Carolina. The a on the arena in the U K, the Dollywood theme Park, and hard rock International and the New England Patriots.
The NFL.
Our total contract value of orders booked or T. C. V was $19 2 million in the first quarter up 7% sequentially and 128% year over year.
As we shared on our last earnings call Q1 got off to a slower start due to the surge of COVID-19 cases from the Omnicom variant and it's lingering impact on both sales and installation activity that said, we began to see signs of improving conditions in March and we now.
Leave the headwind caused by Omnicom is behind us that we're keeping a close eye on any further evolving sop variants.
We deployed 207 units another company record in the first quarter, which drove an increase in the number of subscriptions of evolve Express from 703 at December 31, 2021 to nine and at the end of the first quarter.
This strong activation activity reflected our ability to catch up and operationalize the unusually high installation backlog that we had as of December 31, two.
And it would not surprise us to see installation activity recede a bit here in Q2, but we believe we're tracking well to our goal of 1400 to 1500 subscription by the end of the year, which would further strengthen our market model.
While our primary focus continues to be in the U S based facility operators.
I'm pleased to report that 15% of our bookings activity in the first quarter came from our international markets an area, which we are starting to explore.
We just surpassed 250 million visitor screening we are now screening more than 500000 people every single day.
And every one of those scans enriches, our product capabilities and analytics and underscores our technological lead in the market.
We again saw increasing vertical market adoption of evolve express.
We continue to see signs of accelerating demand in education, and healthcare and professional sports as evidenced by a higher volume of opportunities.
And higher volume of seven figure opportunities.
Nearly 30% of our PCV came from the K through 12 education market, our single largest market in terms of Tam and addressable facilities, we secured 10 educational related customers, including the Charlotte Mecklenburg School District in North Carolina.
One of the largest school districts in the country I think they are ranked number 18 with nearly a 150000 enrolled students.
We closed that opportunity in Q1 and completed the deployment of 50 platforms within just a few weeks.
And then a few days later on our second day and use our golf Express platform was able to identify a student who attempted to enter the district's Barry Academy of technology with a fully loaded handgun.
The student was stopped interrupted and thankfully our potential tragedy was avoided all the students and staff at the school were safe and the school was not evacuated were placed on a lockdown threat.
Threats like this have unfortunately become commonplace in the United States, our K through 12 education activity partner development and funnel are accelerating as more school boards and school districts are acting to digitally transform their security operations.
<unk> and accelerate how they keep their students safe we.
We saw continued growth in the hotel and casino market, which represented about 17% of our T. C D.
We closed a large seven figure deal in Mexico, and this was one of the largest 20 unit deals in the company history. We closed this deal with Stanley Security solutions. We also secured hard rock international and three regional casino operators, we're seeing.
More casinos returning to full pre pandemic operations and are rolling out solutions that can enhance visitors security and visitor experience.
Tourism and performing arts represented about 10% of PCB for the quarter, including a key win at the AAN Arena in the U K the same venue where in 2017 at terrorists detonated an explosive device, killing 22 people.
Attending and Ariana Grande concert.
We're proud to be the new touchless security screening provider for that arena, which is one of the busiest venues in the world and the largest indoor arena in all of Europe .
The win is consistent with our go to market playbook, securing an iconic venue in a geography, then leveraging that as the beachhead for the future expansion in that market.
The health care market, which includes hospitals and clinics represented nearly 10% of our T. C V. As we welcomed nearly two dozen customers, who deploy us to provide patient and see security.
Finally, just in time for the summer vacation period, we were excited to welcome several new theme parks, including Dollywood. The biggest ticketed tourist attraction in Tennessee, and Kennywood, a century old theme Park and Pennsylvania combined these two theme parks welcome more than $5 million.
Visitors annually.
I want to shift and share some key trends, we're seeing in our business.
First we continue to see strong momentum with our channel partners, which is enabling us to extend our vertical and geographic reach.
Over 60% of our Q1 TCE came through our channel partners, which is up significantly from the back half of 2021 that involvement is most pronounced in healthcare education and professional sports, we're seeing broad activity across three dozen authorized channel partners.
And several strategic global partners, and Motorola solutions, Johnson controls and Stanley.
The number of qualified partner involved opportunities has never ever been higher.
We're also seeing strong growth in the number of evolve express certified professionals among our partners, which is a result of the work we've done to activate and enabled partners over the last several quarters. These are our partner professionals, who will be able to sell install and support expressed in.
In the field.
Second on the supply chain front.
We continue to feel the impact of higher hardware costs connected to COVID-19 related challenges over the last 12 to 18 months. We're addressing these challenges by pre buying hard to find parts, which helps us to ensure product availability, while helping protect against the risk.
Rising inflation, we feel confident about both our inventory levels and our product availability.
Third on the competitive front, we're continuing to see more attention being paid to this space, which is not surprising given the size of the market opportunity and the compelling economics.
We still see up to 90% of our opportunities going uncontested, when we do bump into others in the marketplace. It's generally a provider of legacy legacy walk through metal detectors, and we tend to do very well with those head to head competitions as that technology has been around for decades.
Yes.
We continue to stay relentlessly focused on improving the coverage productivity and predictability of our sales force.
Finally, we're seeing increasing acknowledgment of our detection and performance capabilities by Universal testing bodies on March 31, 2020, the end of the quarter 2022, we announced that we had.
Or awarded the U S Department of Homeland Security Safety Act designation for our evolve Express platform <unk>.
Safety Act designation provides significant federal liability limitations for those using or deploying evolve express to protect their visitors.
Safety Act is recognized as an important standard by which security technologies are judged and our designation status validates the express platform as a high throughput touchless weapons detection screening system worthy of the very high EHS performance standard.
Dhs's application process involves significant review of the technology its use in the field results from field testing and customer feedback and testimonials on its performance several of our customers submitted their performance evaluation and testing in <unk>.
Support of our application.
We were also recently recognized by the National Center for Spectator Sports safety and security or NCS for which tested the effectiveness of the evolve express platform.
The results of that testing were very positive as we earned a score of 2.84 on a scale of zero to three the highest among the high throughput touchless weapons detection screening systems.
The DHS Safety Act designation and positive NCS for testing results are important acknowledgements for the company, our customers and our partners and provide further validation of our technological and market lead.
So that's an update on our progress in Q1 and the trends we're seeing in the business we're off to a solid start here in 2022, and we believe we're well positioned to meet our full year top line growth plans.
We remain well capitalized and we remain confident that we have the appropriate resources to get to cash breakeven without any additional capital raising efforts.
None of this would be possible without the trust of our customers put in evolve every day to keep their venues and people in them safe.
In all my years in the security business much of that in cyber security I've never seen such a deep trusted relationships developed between the company and its customers that mutual devotion to keeping students employees visitors and fans safe is something we.
Cherish here at evolve.
With that let me turn things over to Mario who will take you through our financial results and our outlook for 2022.
Mario.
Thanks, Peter and good afternoon, everyone.
I'm going to review, our first quarter results in more detail and then share some thoughts on how we're thinking about the rest of the year we.
We ended the first quarter with 910 active subscriptions.
Up 29% sequentially and 227% year over year.
We had a very strong start of the year, adding 207 subscriptions in the first quarter of 2022 compared to 136 in the fourth quarter of 2021 and 64 in the first quarter of last year.
Some of these more part of the installation backlog, we discussed at the end of 2021.
As Peter mentioned revenue in the first quarter was $8 7 million up 27% sequentially and 118% year over year.
We ended the first quarter with annual recurring revenue or <unk> of $16 6 million, reflecting growth of 29% sequentially and 207% year over year.
As a reminder, we define <unk> as the period ending monthly subscription revenue and the recurring service revenue related to purchased subscriptions normalized to a one year period.
The School district transaction that Peter described led to a strong contribution from our purchase subscription pricing model in the first quarter.
In addition to higher mix of purchased subscription sales. We also had a greater percentage of equipment sales in smaller less expensive one lane systems driving down average revenue per unit.
The school district transaction comprised primarily of single Lane configurations.
Remaining performing performance obligation excuse me or Rps was $50 5 million at the end of the first quarter.
Up 26% sequentially and 186% year over year.
As a reminder, RPM reflects the difference between contract value and revenue that has already been recognized for units deployed as of the end of the quarter.
In addition to RPM.
We ended the quarter with another $13 2 million of contracted revenue associated with unit that had not yet been installed as of March 31 2022.
So in total we had about $63 $8 million of RPI plus contracted revenue in backlog at the end of the first quarter. This represented growth of approximately 24% sequentially.
Gross margin was 19% in the first quarter compared to 26% in the first quarter of last year.
Lower margin reflects the higher percentage of purchase subscription sales, while equipment revenue and costs are recognized upfront.
This impact was more pronounced because of the higher portion of one lane systems sold as part of those purchase subscriptions.
Excluding depreciation and amortization and scrap costs, our gross margin was 31% in the first quarter compared to 37% in the year ago period.
Our product gross margin was negative 7% in the first quarter and as we mentioned was impacted by an unusually high level of competitively priced single lane configurations in the quarter, including the Charlotte Mecklenburg School District transaction.
Our private our product gross margin was also impacted by $175000 of one time scrap charges.
We're very happy to report that we continue to grow our subscription gross margin, which reached 65% in the first quarter of 2022 compared to 60% in the fourth quarter of 2021 and compared to 54% in the first quarter of last year.
This improvement reflects the benefits of scaling our operations.
Just as important our subscription cash gross margin, excluding stock based compensation and depreciation and amortization was 91% in the first quarter compared to 86% in the first quarter of last year.
Finally services gross margin, which is a much smaller component of our gross profit was 11% compared to 36% in the first quarter of last year.
This number is subject to fluctuations in our service cost on any given quarter given its size.
Total operating expenses were $27 5 million in the first quarter compared to $22 $3 million in the fourth quarter of 2021.
There were four specific drivers to this $5 2 million sequential increase in Opex, a large portion of which were one time or out of period expenses.
The biggest reason for the increase in expense was due to $2 5 million in nonrecurring expenses, including $1 million and stock based.
Out of period expense severance in connection with the departure of a senior executive and other smaller items.
We also had an increase of $2 1 million in payroll related expenses, primarily reflecting the growth in head count in the fourth quarter of 2021 and first quarter of 2022, but also the impact of the first quarter payroll taxes.
We exited the first quarter with 196 employees compared to $1 76 at the end of 2021, so a net add of 20 employees.
We expect headcount growth to slow down for the remainder of this year unless sales volumes continued to accelerate.
Another portion of the increase was due to a one time benefit we realized in the fourth quarter of 2021 for a catch up benefit related to the capitalization of prior periods R&D expenses.
This effectively lowered R&D expenses in the fourth quarter and.
In the absence of that benefit the absence of that benefit totaled $800000.
Finally, we saw a $500000 increase in marketing expenses.
Reflecting the timing of certain trade shows which helped to drive a significant increase in unit sales in the quarter.
Loss from operations was $25 9 million in the first quarter up 183% year over year.
Adjusted loss from operations, which excludes stock based compensation and the onetime items was $19 2 million in the first quarter compared to $8 1 million in the first quarter of last year.
Adjusted EBITDA was negative $18 2 million in the first quarter compared to a negative $7 6 million in the fourth quarter of last year.
Now lets discuss the balance sheet and our cash burn, which we're very focused on.
We ended the quarter with approximately $271 million in cash and cash equivalents down.
Down about 37 million from the fourth quarter of 2021.
Approximately $20 million of the Q1 cash burn was due to cash operating loss.
We expect our quarterly cash losses to decrease throughout the year as we grow deployment and limit expenses, though any given quarter may be worse due to the timing of expenses.
Now, let's review the remaining $17 million of cash burn in the first quarter, which is comprised primarily of working capital items.
Seven of the $17 million was cash consumed inventory in the quarter.
An amount comparable to the mat to inventory amount consumed in Q4.
This enable us to meet the growing demand for evolve express.
$6 million was spud a prepayment deposit to a contract manufacturer in the quarter to fund an additional purchase order for inventory.
We are likely to make additional cash deposits with our contract manufacturer to ensure access to raw material and mitigate risk of inflation.
$1 3 million was due to the timing of annual bonuses paid in connection with our employee compensation plan.
Obviously incentive compensation bonuses will not be a cash outflow for the remainder of 2022.
There were a few other timing related working capital items that consumed about $2 million in cash in the quarter, including the activation of our new Netsuite ERP on April 1st which drove us to prepay some expenses prior to quarter end as well as the general timing of installations, which was.
Slanted towards the back half of the quarter It had an impact on billings and subsequent collections.
So again I want to emphasize that about $17 million of the cash usage in the quarter was working capital items, some of which are due to timing.
In addition, we expect a $20 million in cash operating losses to decrease as we ramp up subscriptions throughout the year.
We are we are encouraged by our start to the year and are continue to drive growth higher while staying very vigilant on expenses and cash flow.
Based on what we know today our outlook for the year is consistent with the outlook, we issued just eight weeks ago.
Specifically, we continue to expect full year revenue to be between $29 million to $31 million, which would reflect the growth of about 25% year over year.
We were happy with our strong first quarter performance and continue to feel very confident about the remainder of the year.
However, we have seen that deployments can be impacted from quarter to quarter by large deals and clients' willingness to deploy on a timely basis.
As such we are maintaining our current revenue guidance.
We continue to expect adjusted EBITDA to range between negative, 65% and $67 million in 2022.
This reflects our expectation for sequential revenue growth together with slower expense growth, which should improve profitability over the last three quarters.
We continue to expect to end 2022, with approximately $220 million to $230 million in cash.
Which reflects increased inventory buildup and deposits for materials to support our growth plans in 2023.
We may deploy more of our cash to pay for raw materials, and mitigate pricing pressures, which would feel would have a significant short term return given the inflationary environment.
With that I'll turn things back over to Brian .
Okay.
Thank you Mario.
Operator at this time, we'd like to open the call up for Q&A, we're going to ask participants to limit themselves to one question and one follow up Sean if we could open the call that'd be great.
Yes. Thank you ladies and gentlemen, if you do have a question for todays conference. Please press. One then zero on your Touchtone phone, you'll hear acknowledgment that you've been placed in Q.
You may remove yourself insured anytime by pressing one and zero again.
And ladies and gentlemen, if you do have a question at this time, please press one and zero on your Touchtone phone.
Our first question is going to come from the line of Shaul Eyal from Cowen. Please go ahead.
Hi, This is hugh on for sure.
Guys first of all congratulations on a solid quarter.
And second.
It's always good to hear when you have successes like stopping that done at this school.
In any event thanks for taking the question.
So the first thing I want to ask is.
In terms of product versus subscription.
What impacted that balanced this quarter.
And I remember last quarter, we talked about some customers.
Preferring to for budgetary reasons or other reasons, preferring to buy machines instead of entering into subscriptions and then the second question is are you getting any feedback from customers right now about.
Sort of add on.
Capabilities that you may offer in the future ticketing etcetera. Thanks.
Yeah on the on the impact that you saw that the revenue.
On the purchase subscription side, we recognized.
The entire product revenue upfront and so as a result, because we are not collecting that over time the product revenue.
Increases significantly if were selling a lot more purchase subscriptions compared to the prior quarter and that's exactly what happened. If you go back to the third quarter. We had a similar phenomenon, we had a higher mix of purchased subscriptions and our revenue was actually in.
Impacted positively because of that and then in the fourth quarter that came back to a more normal mix.
Level so.
When you when you track the product revenue line.
That mix component, Ken can make a big impact.
In any given quarter.
I apologize if I didn't answer your question cut out a little bit. So let me know if you need to follow up on that yeah, sorry about that let me try to get closer here.
Question was about the customers and their preferences for machines versus subscription that I recall some of the sports teams.
Sort of preference for buying the express machine.
Because of budgetary reasons instead of entering into a subscription are you seeing any change in that trend just sort of looking forward as well sort of looking for what to expect.
Yeah, I can add onto what Mario has already said so first of all you. Thank you for your comment about that school I'm going to come back to that specifically as it relates to purchases scripted remember Hugh all of our customers get a subscription from us.
Every one of them some of them choose to buy the platform and get a subscription and some choose just to get a full subscription we had in the plan for this year for 75% of our customers to be full subscription and 25% to buy the hardware and then get a subscription.
In Q1, as Mario mentioned more of our customers chose purchase subscription primarily because we were replacing metal detectors, they're used to using capex to buy it.
And in this case with Charlotte Mecklenburg They guide grant money and wanted to spend all the money upfront and pay us upfront and they use their their capex budget to do it so that swayed the quarter a bit but we believe long term, meaning the rest of the year that will normalize back to the 70 525.
And as I said, everyone will get a subscription from us.
That makes sense.
Yes.
Got that.
I was just kind of taking if you're going to see that sort of phenomenon a lot going forward, where people because of budgetary our organizations because of budgetary reasons like the school or the sports theme.
We're going to go ahead, and buy the machine and pay and enter into a lower cost subscription versus customers going to a larger cost subscription without buying the machine, but I get what you say the second question was just about any feedback on potential add ons.
Like ticketing and other things, we talked about in the past taking temperature et cetera.
Yep.
So so absolutely. So we have a big R&D development effort going on this year not only to continue to increase the efficacy of our software make our systems more accurate.
And effective but also to do lots of integration. So we've announced integrations with most of the major leaders in and video management systems.
We're excited about that mass notification systems, so integrating into the existing ecosystem and infrastructure of our customers already there is really really important because we are a digital platform. We can do that no. Other companies can so thats a competitive advantage for us that we like to.
Boy above and beyond that because it is easy and we are a software platform. We can add new applications right now, we're looking at either integrating or adding things like biometric.
License plate reading lots of other capabilities to create that experience that you've heard us talk about before this safe frictionless informed XP.
Experience from the approach when people come to the parking lot or enter outside of the venue through the threshold, where we are in the entry way and then operating freely inside the venue. So yes. We're we're working on both developing ourselves in partnering for adding new applications of the platform the <unk>.
One will probably be in biometric.
Very helpful. Thank you so much.
Okay.
Next we're going to go to the line of Mike Latimore from Northland Capital markets. Please go ahead.
Great. Thanks, and congrats on the strong results here real real strong bookings there.
I guess on the.
I think you said, 60% of bookings came from partners.
I mean, that's.
I believe that's well ahead of your expectations, maybe can you elaborate a little bit on why.
The strength through partners and then does that give you some flexibility to maybe spend a little bit less on internal sales head count.
Yep.
So.
We are planned for this year was to end the year about 50% direct and 50% through channel partners. You May remember last year was more like 70, 30, 70 direct and 30 channel.
30% through channel partners, but we made a big investment last year in hiring World class channel people and to enable our channel partners.
And that investment has started to pay off in earnest even faster than we expected in Q1. So we were really thrilled to see our pipeline growing dramatically and those deals translate into some of the PCV, we've talked about and as we look out at the pipeline for the rest of the year that trend continues.
The investment we were making there is starting to pay off early and it does allow us to not make as many direct investments we have enough direct people today on our sales force to make our our guidance number for the year. So we have people in place to do that but with this acceleration from the channel works.
<unk> about it and we look forward to what the next couple of quarters are going to bring with the channel.
Great and then just on gross margin can you give a little maybe just.
Guidance, there should subscription gross margin.
Sort of trending up here and then on product gross margin is that just going to be naturally kind of.
Little variable on a quarterly basis.
Yeah, the product gross margin.
We'll be quite variable this quarter for example.
We spent a lot of single Lane systems, the margin was probably a little lower than it had been.
So that that's tough I would expect that to revert back to where our averages were.
On the subscription or expectations for that to continue to decline.
Originally we had said upper seventies low eighty's, a subscription margin I think ultimately it will get there.
But it obviously you were very happy with the progression.
And I don't think we will continue to have the same leaps quarter over quarter, but we do believe it will continue to improve as we scale.
Yeah, Yeah, okay.
Thanks, a lot.
Thanks, Mike.
Next we go to the line of Brad robots from Stifel. Please go ahead.
[noise] excuse me great. Thanks, very much I think during the prepared remarks, you had talked about the gross margin.
The Charlotte School district being negative on that sale number one was that correct and number two what was the thought process. If that is correct yes.
In doing that.
We didn't say it was negative we said it was.
The majority of the units sold in that contract where single lane, which typically have a lower price point, they have a lower cost as well.
We didnt disclose how profitable nonprofit it was Mike but.
Brad, but we did.
We did talk about that from a.
Per unit revenue it was typically a lower deal than we've seen from others.
Okay, and then maybe just from a high level strategically you mentioned competition. Some on this and I understand there are aspects of the market that are fairly competitive.
But you're so early on in our process and Youre somewhat supply constrained given the supply chain issues.
Why bother with those opportunities why not focus time and effort on the most profitable business that you can get in any given period.
Sure. So look we're if you remember this is a $20 billion Tam $2 billion is regulated and that's where the existing antiquated metal detector technology is specifically professional sports. So we have a sports team dedicated to that the rest of the organization is.
On the $18 billion Greenfield, so think about schools and hospitals performing arts venues distribution warehouses tourist sites houses of worship, that's exactly where our team is growing and I think some of the.
Acceleration with the channel is our channel partners many of them have deep longstanding relationships with all of those places and they're able to get us into those companies very very quickly. So that's exactly where we're focusing.
And financially Brad it's keep in mind that contracts are very very favorable purchase subscription sometimes it looks like the margins on the equipment.
Light tight are negative.
But that's not a reason not to put demand because that subscription revenue stream is highly highly profitable as we're showing so it is you know obviously I get why you're asking and I understand the point, but the large contracts, even if we don't make a ton of money on the equipment, we're making a lot of great margin on the subscription even more importantly.
Making almost 100% margin on cash Mark our cash margins. So that's why we're very eager to sign those deals up.
It makes a lot of sense, thanks very much.
Thanks, Brian .
Next we will go the line of Brian Rotenberg from Imperial capital. Please go ahead.
Yes. Thank you very much our first question is visibility on cash breakeven.
And you already went over kind of why the cash was burned so high in the period, but can you talk a little bit about.
Timing to cash breakeven is that a 2023 of that.
Yeah, we talked about that at the end of the year.
I'm not going to go into it other than.
We really feel great about where the business is heading.
We're not going to change kind of the breakeven timing, which we talked about it I think we said 2025 or maybe 2024, so Brian I think from our standpoint, we're really kind of focusing on 2020.
Q right now we get why you guys are asking but as Peter mentioned, we're very comfortable we will get to we.
We will get to breakeven without needing any additional financing we have lots of levers to pull including third party financing of equipment, which we are just starting to look into cell.
Whether that's 25 24, we don't know we're committed to getting there quickly as quickly as possible.
And we're also committed to if we can have an opportunity to deploy cash smartly in the near term to accelerate that or.
To get a great return, we'll do that but it has the long term prospect I think is unchanged from what we talked about at the end of the year.
Great and then as a follow up real quick is.
Has there been any change to sales incentives in the first quarter and can you talk a little bit about that has there been a push.
To incentivize the sales force more towards subscription versus product.
How do they get paid and whereas the incentive structure.
Yeah, No there was no extra incentive in Q1.
Remember every one of our sales as a subscription and our and our salespeople do what's best for the customer so.
So we don't try to steer them in any direction.
And we had a we had a record March in every dimension right I mentioned, we got off to a slow start with the omnicom hangover in its seasonally Q1 can be quiet, but boy everything changed in March and we broke every record.
For a month and the company and it wasn't anything we did with the sales guys that we're bringing in the deals that they had been working on for a while and everyone started opening up again right and our customers were willing to accept the systems that they ordered.
And we obviously took advantage of that so we feel really good about how we finished the quarter and feel really good about the momentum we have starting this quarter because it's continued and the outlook looks quite good but I will say, Brian that compared to last year, we've been much more aggressive in pushing sales quota is higher because we.
We're seeing the success of saying well, we definitely doubled quotas for our sales guys. So they have to sell twice as much this year as they did last year their subscription neutral because everything we sell as a subscription and there.
Having great success out there and as you know because we've talked to you before about our channel strategy. There are also channel neutral so whether they sell it director they sell it through the channel.
We can get tremendous operational leverage from all the channel people they have in their territory and that force multiplier is translating into our business.
Great. Thank you.
Okay.
Thank you for your questions I would like to turn it back over to Peter George. Please go ahead.
Great. Thank you. So I just wanted to finish off with hopefully the key messages that everybody Scott from the call today.
First as we got off to a really strong start in 2022, we're really happy with our results in the quarter and really confident in what the rest of the year. It looks like some of those highlights getting 40, new customers in the quarter with huge not just the number but also some of the key customers that we got.
Getting 200 systems deployed in a quarter that was very backend loaded was a challenge for the company, but we met the challenge I mentioned that Mecklenburg deployment.
Was a record for US right. The deal was a $4 2 million dollar deal. It was 52 systems.
And we got those systems deployed in three weeks and got.
Those kids safe going to school 150000 of them in the districts are really really happy about that I mentioned the data that we're collecting 250 million scans.
Nobody in the industry has that kind of data and it's making our.
Technology and efficacy better everyday because the system gets smarter everyday and then finally that partner momentum is translating into the business at an accelerated rate and we expect that to continue. So we're excited about it. So we look forward to seeing you in July when we have the next earnings call. We thank you.
All for attending thank.
Thank you very much everyone.
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