Q2 2022 Evolv Technologies Holdings Inc Earnings Call
Yeah.
Ladies and gentlemen, thank you for standing by welcome to the evolve technology second.
Warner earnings results at this point all the participant lines are in a listen only mode. However, there will be an opportunity for your questions instructions will be given at that time. If you should require any assistance during the call. Please press star zero and operator will assist you offline as a reminder, today's call is being recorded with that I'll turn.
The call over to Brian Norris, Vice President of Finance and Investor Relations. Please go ahead.
Thank you John and good afternoon, everyone and welcome to today's call I'm joined here today by Peter George Our President and Chief Executive Officer, and Mark Donohue, Our Chief Financial Officer.
This afternoon. After the market closed we issued a press release announcing our second quarter results and our business outlook for 2022.
This press release is available on major news outlets as well as the IR section of our website.
During today's call, we will make forward looking statements within the meaning of section 27 of the two.
<unk> 1933 section 21 E of the Securities Exchange Act of <unk> 34, and the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events.
<unk>, including rather, but not limited to statements regarding our ability to meet our business outlook.
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 these forward looking statements because of a number of risks and uncertainties, including without limitation the risk factors set forth under the caption risk factors.
Actors in our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022, and in other documents filed with or furnished to the SEC from time to time.
Our forward looking statements represent our views as of August 10, 2022.
Although we believe the expectations reflected in these statements are reasonable we cannot guarantee though.
Sept 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 operating expenses adjusted EBITDA, adjusted operating income or loss and.
Adjusted earnings and earnings per share, 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 generally accepted accounting principles.
Reconciliations between GAAP and non-GAAP metrics are in our reported for our reported results can be found in our press release issued today. Please note that our definition of these measures may be differ may differ from similarly, titled metrics presented by other companies.
Please be advised that as of January one 2023, we no longer plan to disclose total contract value of orders booked measure we stopped guiding on several quarters ago, because we no longer believe it is consistently indicative of the companys prospects. We encourage investors to continue to focus on key metrics such as annual recurring revenue.
Remaining performance obligation.
Deployment activity and total number of subscriptions, which we believe are more indicative of the company's prospects.
With that I'll turn the call over to Peter Peter.
Thanks, Brian and thank you everyone for joining us today.
We're pleased to be reporting strong second quarter results, which are indicative of the growing momentum and visibility we're seeing throughout the business.
We're encouraged by our year to date performance and based on the strong demand drivers in our business are optimistic in our outlook for a strong second half of 2022.
We have a lot of exciting news to share with you, but before we start I want to take a moment to formally introduce Mark Donohue, who joined US on June the <unk> as our Chief Financial Officer.
I know Mark is a familiar face to many of U S. He has held leadership roles at several publicly traded technology companies Mark brings over two decades of executive leadership experience with a strong background in subscription based businesses.
He joins us from best Mark a leading provider of SaaS based portfolio management and trading tools, where he served as CFO for the last four years.
Before that Mark served in several senior roles on the finance team a rapid seven a leading provider of cyber security analytics and automation.
He also spent seven years at Cisco in various executive roles for the mobility business group and he held senior finance roles at start networks, a leading provider of infrastructure solutions for mobile operators.
Mark has helped build and shape several category, leading technology companies across SaaS, cyber security and networking and I know his experience and leadership will be particularly important to our continued growth. We're fortunate to have him on board welcome Mark.
Thank you Peter.
I'm excited to join the team and I look forward to working with all of the members of the investment community many of whom as you mentioned I've worked with before I joined evolve first and foremost because of the deep connection I have with its vision and mission and.
Unfortunately, we live in an era of escalating violence and that reality impacts not only my family friends and colleagues, but people in all walks of life.
<unk> next generation AI technology delivers a practical and affordable approach to helping solve the challenge of making everyone safer and more to use in their daily lives.
I also joined evolve because I see it subscription based security as a service business model as disruptive as the technology itself.
I believe the company is extraordinarily well positioned in one of the fastest growing areas across all of technology.
The combination of office products market position breadth of customer base business model domain expertise and strength of team position it well for the opportunity ahead and.
I look forward to leveraging my experience to help advance the company's business strategies.
Thanks, Mark it's great to have you on board.
So now, let's turn to our record financial results, which continued to reflect the strong momentum building across the company.
Key highlights include first we extended our leadership position with dozens of new customers, who are creating weapons free zones.
We delivered important product innovations to the market and we continue to gain meaningful traction with our key channel partners.
We also surpassed 1000 evolve express systems deployed and $100 million in cumulative bookings. These two milestones would not be possible without the trust of our customers and partners, who rely on evolve to digitally transform their physical security.
And the hard work and dedication of our employees, our revolvers, who come to work every day inspired to make the world safer for everyone.
Consider one of our health care customers, which is a major hospital system in the southeastern region of the U S.
Since going live just five months ago with evolve express.
We have successfully detected and stop over 120 weapons from entering that facility.
This included an emergency room visitor, who was attempting to gain entry with the concealed subcompact semi automatic AAR 15 rifle and another seven other weapons in his duffel bag.
At a ball preventing a potential mass shooting like the one word it at that hospital that day is.
It's exactly what we were born to do.
And in many ways, we're just getting started.
We see a world where physical security is finally, democratize, where it's easy to deploy easy to operate affordable and present everywhere you go.
We're a global leader with over 1000 units deployed.
Our vision is much bolder than that.
We've identified more than 700000 points of ingress and our core vertical markets that are a candidate for locations for our technology.
Our goal over the next five years is to have over 20000 above express systems deployed globally screening tens of millions of people every single day.
This will accelerate our path to eventually reaching our aspirational milestone of $1 billion of.
Of annual reoccurring revenue.
I believe we're well positioned to execute on this long term vision and build the most durable and enduring company in the history of physical security.
How are we doing in the execution of that vision, let me share with you a few key takeaways from the quarter.
First revenue was nine 1 million up 94% year over year, primarily reflecting three drivers very strong demand in our key vertical markets, including education, and healthcare and increase in purchased subscription deals and continuing momentum and expand.
Chen with our channel partners.
We also delivered strong growth in annual reoccurring revenue and remaining performance obligation.
We added a record 53, new customers compared to <unk> 44 in the first quarter and 21 in the second quarter of last year as our new customer momentum continues to accelerate we secured 97, new customers in the first half of this year compared to 84 in all.
Last year.
Since many of our customers are securing multiple buildings, where schools are measure of customers is more conservative than the number of actual buildings. We're securing as a result, we're seeing positive trends regarding average transaction size or AOSP.
We've reported for transaction of at least $1 million of PCV compared to zero in the second quarter of last year.
Moving on to our rich and unique dataset, we just surpassed 350 million visitors screen second only to the TSA in North America.
We're now screening more than 750000 people every day.
And as many as 125 million people a day on weekends.
Just since the beginning of this year of 2022, we have stopped 57000 weapons from entering our customers venue, including 30000 guns and 27000 lives.
This is unprecedented and the AI based weapons detection screening category, what's more every scan enriches our product capabilities and analytics increases the accuracy and efficacy of our product over time and underscores our technological lead in the market.
I'd like to spend a few minutes highlighting the customer and market traction, we're seeing starting with the accelerating demand in education health care and professional sports.
Nearly 40% of our PCV came from the education vertical.
Key new customers included the Novo charter schools, which operates 18 nonprofit charter public schools across a cargo with over 12000 students and Guilford County schools in North Carolina, one of the 50 largest school districts in the United States serving.
More than 70000 students.
They are now in the process of deploying just over 40 evolve Express systems. A perfect example of how a single customer addition can be much more than a single evolve express deployment.
Our education market activity and order rate is accelerating as more school boards and school districts digitally transform their security operations preparing for the upcoming school year and taking advantage of available funding pools, we're seeing a couple of really interesting trends in the edge.
Vacation market, we're seeing more purchasing decisions being made not at the school or the talent level, but rather at the district wide level. We're also seeing increased adoption of single lane configurations of above express.
Which fit more readily in the smaller entrances of schools some of which are decades old.
Add some context here more than 70% of the units. We sold in Q2 were single lane configurations with the heaviest demand by far coming in schools.
The healthcare market represented about 15% of our T. CVA, there's an increasing number of hospitals and clinics are looking to enhance patient and safety for their staff. That's not surprising when you consider that a recent U S Bureau of Labor Statistics reports that help.
Care workers accounted for 73% of all nonfatal workplace violence.
New healthcare customers include Cincinnati based Mercy health, which we secured with our partner Stanley Security Solutions, New Jersey based capital Health and one of the largest nonprofit academic healthcare systems in the deep South region of the U S.
The arenas and stadiums market represent about 15% of our TCE of eight new customers include the <unk> arena in the U K and yet another major League baseball franchise. We've also recently extended our leadership position across the National Football League, where we are.
Already support the Tennessee Titans, the Atlanta Falcons, and the new ring, New England Patriots just to name a few.
Here in the third quarter, we won a competitive opportunity at Firstenergy Stadium home of the Cleveland Browns, where we've also been named the official fan screening provider.
Finally, we experienced strong traction with the entertainment warehouse government industries, which combined to represent just over 20% of our T. CV.
Key wins here included the Blumenthal performing Arts Center, the tax museum of art and the city of Detroit.
The win at the city of Detroit is fascinating example of a rapidly developing use case for our technology and it's also expanding our Tam in an unexpected way.
There is a growing demand among government agencies as well as local law enforcement to secure not just buildings, where people work learn and play but also in large gathering spaces, where people live their everyday lives.
The city of Detroit selected evolve to support the creation of weapons free zones for pedestrians across the city because number one we could offer a superior visitor experience, we could free up local law enforcement to provide security away from the point of ingress and <unk>.
Cause we could be integrated into the cities security operations Center.
We also deployed over the summer just in time for the Ford fireworks display which has been on hiatus for two years due to COVID-19.
Pandemic.
This celebration was held downtown with over 100000 people in attendance and the main viewing areas.
In past years, the event has been plagued with gun violence and many residents express fear for attending the result at this summer's event zero gun violence.
We continue to see growing momentum internationally.
For the second quarter in a row, we secured over $1 million of Pcbs outside of North America. Recent wins internationally include the arena and the O. Two arena in the U K and discrete O T mobile our first win in Puerto Rico.
The <unk> arena, which is managed by ASM global welcomes over 1 million visitors each year and is one of the busiest venues in the world. We were deployed to enhance venue safety and security as well as improve the customer experience by making lines go away to offer a seamless and <unk>.
With the rival into the venue.
Given the positive experience at the arena the ASM Global has announced plans to further rollout evolve express at other venues across Europe .
The Street go to mobile is a major entertainment complex in Puerto Rico, which opened in August of 2021, it's located in the Miramar section of San Juan and drew more than $1 7 million visitors in the first six months of operation.
Our technology is allowing visitors to walk into their iconic complex safely and seamlessly without any delays at all at the entrance.
One of the most important elements of our long term growth objectives is the leverage we're getting from strategic channel partners like Motorola solutions, Johnson controls and Stanley Security solutions as well as our other growing number of regional partners, who combined to extend our vertical.
And geographic reach efficiently and effectively.
The number of qualified partner involved op opportunities has never been higher I am pleased to report that our partners contributed to over 50% to our order activity in the second quarter and nearly half of that came through Motorola solutions, with whom we have a strategic OEM.
Partnership we now have nearly 500 qualified opportunities in our pipeline with Motorola we continue to make great progress on cross training enablement activation and certification of the Motorola teams.
So in summary, we are reporting strong second quarter results highlighted by record revenues.
<unk> and <unk>, we continue to see strong market momentum in education fueled by newly available federal and state funding.
We continue to extend our leadership position with a record number of new customers strong product introductions and acceleration with our key channel partners.
We remain well capitalized and believe that the strength of our balance sheet will enable us to reach cash flow breakeven without any additional capital.
And finally based on the strength of our first half results and the momentum in the business. We remain highly confident in our ability to deliver on our full year growth plans with that let me turn things over to Mark who will take you through the financial results and our outlook for the back half of 2022.
Mark.
Thanks, Peter and good afternoon, everyone.
I am going to review our results in more detail and then share some thoughts on how we're thinking about the rest of the year.
As Peter mentioned revenue was $9 1 million up 4% sequentially and 94% year over year.
This growth was highlighted by a 33% sequential increase in subscription revenue, reflecting the growing emphasis we're making on our peer subscription model.
We ended the second quarter with 1100, 47 contracted subscriptions up 26% sequentially and 193% year over year.
<unk> was $22 1 million up 15% sequentially and 111% year over year.
<unk> at the end of the second quarter was $20 9 million, reflecting growth of 25% sequentially and 181% year over year.
Yeah.
Remaining performance obligation or <unk>.
It was a record $66 2 million at the end of the second quarter up 31% sequentially and 166% year over year.
<unk> reflects the difference between contract value and revenue that has already been recognized for units that have been deployed as of the end of the quarter.
We estimate that the gross margin of our current RPI, excluding overhead is approximately 65%.
The benefit of which will accrete to our income statement over time.
That does not include the renewal opportunity, which would strengthen that gross margin over time as well.
In addition to <unk>, we had another $14 7 million of contracted revenue associated with units that had not yet been installed as of June 32022.
So in total we had about $81 million of RPI plus contracted revenue in backlog at the end of the second quarter representing growth of approximately 27% sequentially.
Gross margin was 6% compared to 16% in the second quarter of last year.
As a reminder, our gross margins don't currently reflect the overall business value as we're using two very different accounting treatments between our pure subscription sales.
And our hardware purchase subscription sales.
And case of pure subscription sales were yielding gross margins, so that align better to the long term deal economics.
Alternatively, with our hardware purchases and sales, we recognize the equipment revenue and equipment cost at the beginning of the subscription period in advance of the long term software subscription benefit.
This results in lower gross margins for hardware subscription sales earlier in the lifecycle than is typical over the contract period.
The combination of these very different accounting treatments.
Has traditionally driven our reported gross margins lower than the value of the customer contracts are truly reflecting overtime.
Going forward, we expect to lead increasingly with our peer subscription offering which aligns more closely to the SaaS nature of our business model.
The Q2 gross margins also reflected a higher mix of single Lane systems.
We sold as we accelerated our presence in the education market and a higher contribution we saw from our channel partners.
Total non-GAAP operating expenses were $18 2 million compared to $19 4 million in the first quarter of 2022, and $6 6 million in the second quarter of last year.
This sequential decline in Opex reflects reductions in ongoing professional services and our continued company wide focus on cost control.
We exited the quarter with 213 employees compared to 196 at March 31, 2022, reflecting a net add of 17 employees.
Net loss was $25 7 million compared to $23 million in the second quarter of last year.
Adjusted net loss, which excludes stock based compensation and other one time items was $17 3 million compared to $9 1 million in the second quarter of last year.
Adjusted EBITDA, which excludes stock based compensation and other onetime items as well with $16 4 million compared to $5 2 million in the second quarter of last year.
Turning to the balance sheet, we ended the quarter with $243 million in cash and cash equivalents down about $28 million from the first quarter of 2022.
This reflects adjusted net loss of $17 million as well as several other uses of cash in the period, which were timing related and we expect will benefit us over the next several quarters.
The first was an investment we made in finished goods inventory as we continue to prioritize product availability.
Our inventory balances increased 55% sequentially to $6 million at June 32022, compared to $3 9 million at March 31 2022.
Another driver was the increase in prepaid deposit balances primarily related to our contract manufacturing partner again, as we prioritize product availability and lock in hard to source components.
Prepaid deposits increased by 32% sequentially to $17 7 million at June 32022 from $13 5 million at March 31 2022.
Finally, we saw an uptick in accounts receivable due to the increase in sales as well as our paws and billing activity earlier in Q2, as we migrated to net suite for our new ERP system.
Our AR balance increased by 42% sequentially to $12 2 million at June 32022 from $8 6 million at March 32022.
In total these three drivers combined to consume approximately $10 million in cash in the second quarter of 2022.
We consider all of this to be timing related and not what we would consider a run rate to use of cash going forward.
As we shared last quarter, we continue to expect our quarterly cash losses to decrease in the second half of the year as we grow deployments and limited expenses.
We are encouraged by our progress during the first half of the year. We believe we are well positioned to meet our full year growth plans and as such are reaffirming reaffirming our previous guidance, which calls for full year revenue of between 29% to $31 million.
With the year exiting <unk> to more than double to 27% to $28 million.
We expect to end the year 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.
It also assumes were successful in implementing third party financing to support our rapidly growing pure subscription pricing model.
We also expect to pay down our extending long term debt of approximately $10 million before the end of 2022.
So in summary, we're pleased with our strong results of the second quarter. We're excited about our plans for the back half of the year and the opportunity ahead in 2023 and with that I'll turn the call back over to Brian .
Thank you Mark at this time I'd like to open the call up for Q&A again, we ask participants to limit themselves to one question and one follow up and I'll turn the call back over to John .
Thank you, ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one cereal command.
Youre using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question you May press. One then zero at this time and one moment. Please for our first question.
And first go to line of Shaul Eyal with Cowen. Please go ahead.
Thank you good afternoon guys.
Apologies for joining a little late.
You can find out.
<unk> financial statement I think you've mentioned.
Number of prior errors in that front.
Prior financial statements.
We're kind of 2021.
Can you address that.
What changes have been implemented when you're thinking about your reporting systems and I have a follow up thank you.
Great. Thank.
Thanks, Joel this is mark Donohue.
Yes. So we are we're really strengthening our team the processes and systems that we're using right now we talked about moving to our new ERP system net suite. This quarter. So we've been we've been finding some some some some minor elements some minor re classes to minor fixes and we we worked with Pwc.
To really see how to best handle those going forward.
The areas are not really core to the business that that were that were really driving but.
Just to give you a sense, we had a re class from field and tech resources that were in sales and marketing some small numbers that that we really felt belonged in Cogs long term.
And just some some inventory and fixed asset re classes that we did as we kind of drive our SaaS model, but other than that it's not a it's.
It's not that serious amount of things and the numbers are relatively small.
Understood. Thank you so much.
Thank you so much for the color.
On that point.
Sure.
My second question is.
Thank you.
And I know the international opportunity loan become represents a meaningful one.
Any issues with foreign exchange this quarter I would imagine the answer is probably no, but just wondering how you guys feel about it.
I know, there's there's no issue with foreign exchange.
At this point, we are actually doing all of our billing in USD. So so that would not be an issue.
And we've been we've been keeping.
We're relatively.
We're relatively clean into in terms of our AR balances and on the international side and just to let you know to that.
Less than 5% is coming out of EMEA right now for us.
So ill cede the floor I'll come back later on thank you.
Thanks, Joe.
Next we'll go to line of Mike Latimore with Northland Capital markets. Please go ahead.
Alright, thank you.
Yeah.
So congrats on the quarter and it sounds like.
Great momentum in the business.
Just wanted to get some more detail on the bookings and pipeline.
You have a person.
<unk> of the bookings and pipeline that are kind of appear subscription versus.
Purchased subscription with us.
Sure, let me take that and then I'll ask mark to weigh in and how you doing Mike.
Yeah good.
We had a great quarter in health care and education.
What we learned during Q2 is that a lot of the education customers wanted to do a purchase description.
We ended up buying the hardware and getting the subscription with it it ended up being about 50%.
Our sales, which is we didn't expect that and we had planned for something a lot smaller. So we think in the back half of the year, we're going to direct our customers more towards full subscription and not purchased subscription and because we had such a strong Q2 and purchased subscription that drove the revenue number up.
But we don't think that that's going to be the future.
Back half of the year, what we'll want to do in 2023. So the mix was about 50 50, we expect that to change in lean heavily towards subscription I'd like it to be more like 80, 20, or 90 10 in 2023, and we're going to work our way there in the back half of 2022.
Okay.
Okay. Okay.
And then.
I know the supply chain has made it harder to reduce the system cost hardware cost overall, but maybe can you give a little bit of an update on.
The plan to get.
Hardware system cost down.
Whats the strategy, there whats the potential timing and potential magnitude of the changes.
Yeah, Peter I'll, probably Peter and I will probably tag team on this one but let me let me get started here first.
Going into next year, we're already working hard on some costs down measures for our express system.
So we are we are instituting those and we expect by sometime middle of next year to start seeing some of the benefits from the from those cost out efforts.
If we're looking at the slot supply chain more generally.
It has been a tough environment, we're doing we're doing some buys of our products as early as 12 months in advance just so we can kind of secure those parts.
Last time buys that are happening so we're being we're being very vigilant.
On that front and then just and just in this kind of heightened market.
The supply chain is under pressure there have been what we call purchase price variances, which is basically it's basically just that some of our some of our products costing a little bit more than they typically would.
And we're trying to keep that in check as well, but those are some of the things that were you know.
We're doing I don't think its.
I don't think it isn't anything to be concerned about and we actually have a quite quite a bit of quite a team working through it and helping us.
Keep it in check.
Yeah, and I would only add to that Mike that we made meeting the demand the top priority for the company this year and because of that with the global supply chain challenges and our strong balance sheet. We forward ordered long lead time items to make sure that we have the products.
In place to go meet the demand as you know our plan is to have.
<unk> exit this year with about 1500 systems deployed.
We're going to we're going to beat that number.
And the investment we made in parts.
Late last year and early this year guarantee that so really happy we did it and I think it is going to pay big dividends for us going forward and our team has done a really superb job of redesigning systems dealing with the chip global chip problem and making sure that we can meet the demand and we're delivering systems and.
Less than 30 days to our customers today, and we feel great about that.
Okay.
I guess, just one last one just.
Piqued my interest the Detroit story I guess.
Do you see I mean that sounds like.
Highly valuable and useful use case.
I'm guessing that can be a good reference accounts starting are you seeing other kind of interesting weapons free zones around the country.
We are I mean, as we know.
Violence is increasing everywhere at venues, but also in cities and with all the anxiety. So were the city of Detroit came to us last year.
Said.
We would like to.
Create pedestrian free zones downtown and.
In areas, where people just can walk in and of course, we talked about what we did with them at the fireworks. It's exciting and there are lots of other cities that have come to us that are having the same problem that we think we can help them. So we're excited about it we didn't think that that was going to be a great use case for us, but it's becoming one.
John .
And I think it expands our Tam because it's not something we had planned for before so we hope youll see our systems as you walk into areas that.
Its not a building, but its places where people gather festivals and things like that will be walking through our system. So you know when you're inside your safe.
Okay. Thank you.
Thank you.
And just as a brief reminder, if you would like to ask a question. Please press one than zero and then we'll go to Brian Rittenberry with Imperial capital. Please go ahead.
Great. Thank you very much good quarter.
Couple of quick questions.
Your guidance of 29 to 31 million implies that the second half of the year is going to be.
Weaker than the first half I think you've produced roughly $18 million in revenue in the first half am I misreading something or misunderstanding.
Well look let's start with <unk>.
We have a lot of momentum in our business and we feel really good about where we are.
Having said that what I said earlier, Brian is that we didn't expect 50% of our business to be purchased subscription we expected you know.
20% of our business to be purchased subscription, which drove the revenue rec higher than we expected we're going to be directing our salespeople and our channel to lead with prescription only in the back half of the year and maybe only offer that next year, we will see and I think thats going to change what.
The revenue model looks like so we wanted to take a conservative and cautious and prudent approach.
On to guidance.
And we will let Q3 helped determine what the mix is going to look like so we feel really good about the momentum in our business, but given that shift towards purchase subscription it artificially inflated our revenue and we don't think thats going to be the trend going forward add to that.
Inflationary concerns.
Concerns about the recession in a war and global supply chain, we think being prudent and conservative right. Now is the right approach, but against the backdrop of that is really strong demand and momentum in our business.
Great. Thanks for the color on that.
Can you talk a little bit about your single units going into the schools.
Can you give us a ballpark on.
How those are being funded and how much those costs in our pool per school basis.
Just wanted to see where the money is coming from school systems are historically cheap and youre getting a lot of traction there. So I just want to understand how you get off track.
Yeah.
There are a couple of things going on there number one what we saw was an enormous amount of our business coming through the channels. So our channel partners. We mentioned some of them are.
Had been selling to schools for decades, so, they're really really well positioned to lead with our product and not only sell our product by itself, but integrated into other things that they are selling access control video analytics things that they do and then stitch that together to provide a really nice really nice solutions.
Our channel who has done a really great job of getting us in front of the opportunity in schools, we're seeing new funding and schools.
Around the safety Act, but also there has been <unk> funding that was issue a couple of years ago that was COVID-19 related theres, a $150 billion of Essar funding. That's unused that was issued by the federal government that schools can tap into.
And so we're starting to see people use those on spend after funding to fund security.
And that's that's driving schools now to be able to step forward and deploy these systems. So that's the interest and and the other thing around the schools is that we had planned for selling lots of do lay systems and what we're finding as schools are putting a dual lane in the main door, but in.
Other doors, where they're bringing in the bus stop or the car drop off they are using single lane system. So that's what's shifting the mix from Tulane single Lane and then the cost of that is about 40% less than our new LN system. So we have to sell a lot more single lanes to make both the revenue and the PCB numbers.
We had planned for.
Great. Thank you.
And Thats one of the line of Brad Reback with Stifel. Please go ahead.
Great. Thanks, very much can you guys remind us what the economics look like on the channel sales.
Sure.
So we have an MSRP that we that we issue to the market our standard channel partners get 20% discount.
And.
We have a.
Even a bigger discount with our OEM partner, So we know exactly when it goes through the channel what what the margin is going to look like because we recognize the buy price from the channel to us and we also retire quota with our salespeople on the byproducts as well so that's what the discount is it standard.
One gets the same one.
And it helps us be more predictable about what our margins are going to be and what revenue we're going to get.
And on the revenue front is the Rev. Rec happened when the customer installs or when you deliver it to the partner.
Okay.
It's on the it's actually on the it depends on the situation.
The subscription pure subscription sales it happens on the installs when when we if we are selling it to the partner or frankly any hardware purchase.
Especially with the channel, it's actually recognized upon the receipt by the channel.
Oh, that's great and I know, you said too, but could I sneak one third one and which was around the.
The third party financing commentary.
Will that meaningfully change the economics.
Going forward.
So what we're really doing as we go and try to drive the SaaS business, where obviously you're going to have an increase in our fixed assets as we over that over the period to which we the lifetime value of the product.
We're going to be trying to trying to try to finance that because obviously, we're not a bank. It's a quarter of our business long term and we want to keep our operating capital.
And play so I would expect by the by the end of the year, we're probably going to have close to at this point, we've got about $35 million in fixed assets, we probably have something in the area of $45 million in fixed assets.
And this is the time when we want to start thinking about making sure that we're working through that and funding it correctly.
That's great thanks very much.
Thanks, Brad.
And with that I'll turn it back to the company with no further questions in queue.
Terrific John Thanks, very much I appreciate that last question, so what Andrew I'm going to.
I'll turn the call back over to Peter for just a few closing remarks sure. Thanks, Brian .
Thank you everyone for joining our call today, we feel really good about.
The results that we just announced to the market record revenue record a record.
Record RP O.
We're excited about that obviously, we're operating it.
A higher level, particularly around education, and healthcare and we've seen a dramatic increase in the pipeline and opportunities in those two verticals. They are big verticals to go get and were going to go get them.
Extended our leadership in terms of record new customers, we're innovating, which is critical for our products and of course, we're enabling our channel and getting amazing operational leverage both here in North America, but also getting that same kind of leverage in the international markets as I mentioned, we feel great that we're fully capitalized as a.
And have a lot of confidence in the full year outlook of the numbers. So we thank everyone for joining number and we look forward to the next call that we have which I think is going to be in November to report our Q3 results. Thanks everybody.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Yeah.
We're sorry your conferences ending now please hang up.