Evolv Technologies Holdings Inc. Q1 2023 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the evolved technologies first quarter earnings call. At this time all parties are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance. During the call you can press star and then zero and as a reminder, this conference is being recorded I'd now like to turn the call.
Over to our host Mr. Brian Norris. Please go ahead Sir.
Thank you, Sir and good afternoon, everyone and welcome to the call.
I'm joined here today by Peter <unk>, our President and Chief Executive Officer.
Mark Donohue, our Chief Financial Officer.
This afternoon. After the market closed we issued a press release announcing our first quarter results and our updated business outlook for 2023. This press release is available on the IR section of our website as well as all major news outlets.
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 1934, and the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995 that relate to our expectations and views of future <unk>.
<unk>, including but not limited to statements regarding our future operations growth and financial results, our potential for growth and ability to gain new customers demand for our products and offerings and our ability to meet our business outlook.
All forward looking statements are subject to material risks and 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 in our annual report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 24, 2023 as updated in our other documents filed with or furnished to the SEC.
From time to time.
Forward looking statements made today represent our views as of May 10, 2023, although we believe that the expectations result reflected in these statements are reasonable we cannot guarantee future results performance or the events and circumstances reflected in our 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 or.
Our commentary today will also include non-GAAP financial measures, which we believe provide additional insights for investors.
These measure measures should not be considered in isolation from or as a substitute for financial information provided and prepared in accordance with GAAP.
Reconciliations between non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today.
Please note that our definition of these measures may differ from similarly, titled metrics presented by other companies we.
We will be discussing key metrics, such as annual recurring revenue or <unk>.
Remaining performance obligation or RP O deployment activity and total number of subscriptions each of which we believe are helpful to investors in understanding the progress we're making as a business. In addition, investors will note that todays press release also included additional disclosures around recurring and nonrecurring revenue, which we believe provides further transparency.
Yes look fundamentals of our revenue growth.
We encourage you to join us for our analyst day for more information about that event or all of our IR programs. Please contact me at B Norris at evolve technology Dot com.
With that I'd like to turn the call over to Peter Peter.
Thanks, Brian and thank you everyone for joining us today.
Let's spend a few minutes on our results for Q1, and then review the trends that are driving those results and then close by sharing a few highlights from a couple of recent implementation stories to shed more light on the benefits our customers are realizing from our solutions Mark will then walk you through our financial.
Our results and our outlook for the remainder of the year.
During the first quarter, we delivered strong results across every key measure of the business base.
Based on the strength of those results and the confidence we have in our outlook for the remainder of the year, we're raising our guidance for 2023.
Revenue in the first quarter was $18 6 million up 113% year over year.
Our growth continues to reflect strong new customer acquisition activity and the continued expansion of our subscription base.
We welcomed over 60, new customers in the first quarter, including our hometown Boston Red Sox and activated another 520, new multiyear subscriptions of evolve express.
We now serve nearly 600 customers with close to 2800 units deployed.
We continue to believe that our new customer acquisition efforts are resulting in a first mover advantage due to the strong network effect dynamics of our market.
And as we introduce new applications. We believe we can extend our customer value proposition, which we believe will drive higher revenue per customer and optimized renewal rates.
We grew <unk> from 34 million at the end of 2000 $22 million to $42 million at the end of the first quarter of 2023, reflecting growth of over 23% sequentially.
As Mark will describe more fully our efforts over the last six months to shift more of the business to a pure subscription is already beginning to impact our operating results as demonstrated by strong gross margin expansion in Q1.
We remain on track to double <unk> in 2023, which combined with the gross margin expansion and prudent expense management gives us confidence in our ability to deliver adjusted EBITDA ahead of our earlier targets.
We also believe we're in a much stronger net cash position today than we were just a quarter ago. Thanks to faster gross margin expansion and certain strategic initiatives. We've implemented on the partnership side, which we will expand upon during this call.
We remain well capitalized and expects to reach cash breakeven with between 75 and $100 million and net cash Mark will share more thoughts on our results and our upwardly revised outlook in a few moments.
Yeah.
Our mission is to make the world a safer place.
A live work learn and play.
And there's never been a more important moment for our company than right now.
2023, tragically begun with an unprecedented level of gun violence in America.
With 202 mass shootings and the first 130 days of the year.
Ahead of last year's pace, which resulted in 647 mass shootings.
And just a few short weeks, we lost six people, including three children at a school in Nashville.
Five employees at a bank in Louisville.
For teenagers at a sweet 16 birthday party in Alabama.
And eight people just this past weekend and a shopping mall in Texas.
These events underscore the urgent need to take more proactive steps to prevent gun violence with gun violence now surpassing car accidents as the number one cause of death for kids under 18, our country is crying out.
For more effective solutions.
With modern advances in sensor technology data driven software the ubiquity of cameras cloud connectivity artificial intelligence and machine learning models technology can play a crucial role in addressing this tragic epidemic.
Just like digital advances can bring civilians to space drive cars, our economists Lee and help address challenges and climate change developments in artificial intelligence can be applied to the gun violence epidemic gripping the country.
Our customers across stadiums schools hospitals theme parks and performing arts venues have partnered with evolve express for this help.
As security professionals, we know that there is no perfect solution no absolute prevention, but with advanced cutting edge technology like ours combined with a multi layered defense architecture that includes trained people and proven security processes.
We believe that as a society, we can begin to reverse the escalating trends that we are now seeing.
We believe we are making a positive difference to our rapidly growing customer base. We have now screened over 600 million visitors and are now finding on average over 450 guns every single day.
We're partnering with our customers to create safer zones and are relenting focus to get evolve express in places where people gather and to truly <unk> security.
In America inspires our team every day to help prevent even one more violent interaction with a gun.
Yeah.
I wanted to share with you some insights into some of the key trends, we're seeing in the business.
We continue to see broad adoption of our solutions with strong end market demand in education, and health care and professional sports our key vertical markets of note, we're beginning to see growing traction and industrial workplaces, which was our fastest growing market.
The demand in education continues to accelerate the.
The education market again represents 50% of our business in the first quarter. We added over 65 more school buildings in the first quarter up from 400 school buildings at the end of 2022.
I believe that we will add at least one more SKU building every single day here in Q2.
We extended our penetration rate among the 100 largest school districts in the country, which now stands at 11.
We're pleased to welcome the Cobb County School District in Georgia, The Baltimore City School District in Maryland, and the Douglas County School District in Colorado.
We also added Clovis municipal schools in new Mexico, as well as the Hopewell City schools and the Manassas City public schools, both located off the Interstate 95 and Virginia.
We're also beginning to accelerate our presence in schools out west with newer deployments in Colorado, New Mexico, Utah and in California.
Evolve express can now be found in schools across 34 states and is now being used to screen hundreds of thousands of students every single day.
We continue to extend our early leadership position in the healthcare market, which includes over 6000 hospitals, where over 70% of workplace pilots takes place.
We're pleased to report that we added another 20, new health care customers in the first quarter, including me Morris Children's Hospital in Delaware that Gerard champion Regional Medical Center in New Mexico, and Doyle skin health in Pennsylvania, we're in.
Now deployed at over 150 hospital buildings across the country, which is up more than 10 X over last year.
Professional sports remains a high visibility vertical market for us.
We now partner with 10 teams across the National Football League for teams across the National Hockey League and Seventeens across major League soccer.
We had a very busy spring across major League baseball as we helped open the seasons for the Boston Red Sox, the Minnesota Twins, the Philadelphia Phillies, the Houston Astros, The New York Mets, the Pittsburgh Pirates and for other franchises, we now screen millions.
The fans of nearly 3000 professional sports teams across the NFL MLS MLB NHL.
We continue to see accelerated momentum with our channel partners, which include Johnson controls secure of course, Motorola Alliance stone and over 70 other partners.
Record, 80% of our bookings activity in the first quarter came with or through a channel partner. We're also pleased to announce our expanded relationship with Columbia attack, our longtime contract manufacturing partner CP is now an authorized distributor of evolve express.
And will play an important role for customers that prefer to purchase evolve express while concurrently entering into a long term subscription contract with us for those related software.
We believe this expanded partnership will ensure that we can fully support the buying preferences of our customers. While also driving gross margin expansion over the next several years CP continues to be a strong partner for the company.
Another important trend that we saw throughout the first quarter with the increased adoption of our full subscription model.
As we've shared with investors in the past, we've been leading with our subscription model for over six months now and that effort is beginning to pay dividends in fact.
Over 60% of all unit bookings in the first quarter were via our pure subscription model that was directly correlated to the gross margin expansion we delivered in Q1.
Finally, we saw deal sizes continue to increase with Asp's up about 20% from the year ago period.
That reflects the trends, we're seeing in both expanding our pools and average deal size specifically the average deal in Q1 included five evolve express units compared to four in the fourth quarter and three in the first quarter of last year.
So that's a look at some of the trends that are shaping the business early in 2023, let me shift and bring to life to brief customer stories, one in education, and one industrial warehouses to shed more light on the value of our solutions that are being delivered.
When it comes to the safety of students administrators teachers staff parents and visitors many would consider James Island Charter High School in Charleston, South Carolina to be at the head of the class.
The school, which is home to 1600 students began using hanwha metal detectors and 2018.
And walk through a metal detectors in 2020 to elevate their security posture.
But they all ultimately determined that traditional metal detectors were problematic as lines would form outside the school, creating anxiety and frustration as well as soft targets.
They establish new goals to reduce long wait times minimize false alarm rates eliminate potential security screening biases and reduce the number of staff members required to manage security screening.
School officials elected to implement evolve express and the results have been staggering the long lines and soft targets have been eliminated security screening staff have been reduced by 33% student concerns over security screening biases have been reduced and they've been.
On to develop plans to further extend their deployment to include athletic events for additional layered security.
Let me shift and share some insights from the industrial workplace market.
Which is home to tens of thousands of manufacturing plants distribution centers and warehouses.
Sure.
Purple innovation based in Alpine, Utah designs, and manufactures a variety of products, including mattresses pillows bedding and frames.
They have over 500 employees and operate over 50 manufacturing and retail locations across the United States.
They establish specific criteria as they launched a search for security screening solutions for their manufacturing facilities, which operate across 212 hour shifts six days a week.
First and foremost they were looking to dramatically reduce the likelihood of a weapon getting into purple manufacturing facility.
They also wanted to enable employees to focus on work and feel a sense of safety while on site.
They needed to screen hundreds of employees during shift changes in a matter of minutes.
Lastly, they wanted to brand security screening and promote safety for HR recruitment.
After seeing evolve express an action at a sports stadium members of the Purple innovation management team decided to move forward with our solution and the outcomes have been very positive there.
We're now screening over 300 employees and less than five minutes during shift changes.
This is significantly faster compared to their legacy walk through metal detectors and with far few nuisance alarm rates.
They've minimize the risk of weapons entering one of the company's facilities and these are also improve their security posture by integrating evolve into the security technologies, including their milestone video security system.
Next for them is the installation of revolving doors at their facilities with an API connection to evolve express so that those doors can be automatically lock when a weapon is found.
So to summarize we are reporting solid first quarter results.
Delighted by strong growth in revenues.
<unk> and RP O.
We again delivered strong growth both in new customer acquisition, and an expanding deployments within our existing customer base.
We're continuing to see evidence of the leverage in our business model as the revenue growth again outpaced operating expense growth.
We remain on track with a growth plan for 2023, which is focused on doubling our AR and we believe that the strength of our balance sheet will enable us to reach cash breakeven without the need to raise any additional capital.
With that let me turn things over to Mark who will take you through our financial results and our outlook Mark.
Thank you Peter and good afternoon, everyone.
I am going to review, our first quarter results in more detail and then walk through our upwardly revised business outlook for 2023.
As Peter mentioned total revenue was $18 6 million up 113% year over year.
Our revenue growth in the first quarter continued to be fueled by strong new customer acquisition activity and rapid acceleration and a number of revenue generating subscriptions.
Annual recurring revenue or <unk> at March 31, 2023 was $42 million, reflecting growth of 153% year over year and 23% sequentially.
This is a key metric for us as we mentioned previously we retired total contract value or <unk> is a key metric at the end of last year. Since it is no longer a consistent indicator of future performance.
Total recurring revenue during the first quarter of 2023 was $9 1 million compared to $3 2 million in the first quarter of 2022.
Reflecting growth of 187% year over year, and nearly 50% of total revenue.
Recurring revenue includes the recurring portion of revenue related associated with pure subscription contracts and hardware purchases.
Our total number of revenue generating subscriptions increased to 2000 and 787 at the end of Q1 2023 compared to 910 at the end of Q1 2022.
This increase in subscriptions was the primary driver to the strong growth in recurring revenues.
Remaining performance obligation or RP O as of March 31, 2023 was a record $162 million up 154% year over year and 12% sequentially.
Adjusted gross margin, which excludes stock based compensation was 27% in the first quarter of 2023 compared to 12% in the first quarter of last year.
Our improved gross profit and gross margin primarily reflects our continued transition to largely a subscription business structure.
As Peter mentioned during the first quarter about 60% of all units booked were via our pure subscription business model.
Which again includes subscription for both hardware and software.
That's a trend we've seen strength in here in Q2 as well.
As we continue the shift towards subscription and we continue to engineer product costs down we expect overall gross margins to continue to expand.
Investors will note that we had higher gross profit in the first quarter of 2023, and we did all of last year.
We have made gross margin expansion, a corporate priority and we look forward to building upon that improvement going forward.
Adjusted operating expenses, which excludes stock based compensation loss on impairment of equipment and certain other onetime expenses were $22 2 million compared to $19 9 million in the fourth quarter of 2022, and $19 4 million in the first quarter of last year.
The increase year over year, primarily reflects head count investments across the business, particularly in revenue generating positions and in research and development.
The increase sequentially is also due to higher payroll taxes, which is common at the start of the new year.
We exited the quarter with 247 employees compared to 225 at December 31 2022.
The majority of the head count growth was in quota carrying sales executives and channel development personnel as we invest appropriately in our growth plans for the rest of the year and into 2024.
Adjusted loss, which excludes stock based compensation noncash charges and other one time items was $16 9 million compared to $18 5 million in the first quarter of last year.
Adjusted EBITDA, which excludes stock based compensation and other one time items was negative $15 4 million compared to negative $18 million in the fourth quarter of 2022 and negative $17 3 million in the first quarter of last year.
This reflects about a 10% improvement both sequentially and year over year, primarily due to higher gross profit and careful expense management.
Turning to the balance sheet, we ended the quarter with $182 million in cash and cash equivalents down about $48 million sequentially.
That reflects the full $30 million payoff of the debt facility with Silicon Valley Bank, which we had previously installed in the fourth quarter of 2022.
So our net cash position went from $200 million at the end of 2022 to about $182 million at the end of Q1 2023, primarily.
Driven by our net loss and fixed asset additions to support the pure subscription business all of which was partially offset by the positive change in working capital.
I want to close with a few comments on our updated thinking for 2023.
As we shared with investors last quarter, we think seasonality trends combined with ramping of channel enablement and the timing of certain hiring decisions will lead to a greater percentage of our sales activity coming in the second half of the year like we saw in 2022.
But that's how we continue to see this year shaping up.
Based on our strong performance in Q1 and the current indications we are seeing in the business, we are raising our outlook.
We expect revenues of between $60 million to $65 million in 2023 compared to our earlier guidance of between $55 million to $60 million.
We expect to end 2023, with a RR of between $67 million to $71 million compared to our previous guidance of $65 million to $70 million and compared to $34 million at the end of 2022.
We expect gross margins to improve throughout 2023, and we are currently modeling 35% to 40% for the full year up from our prior outlook of 30% to 35%.
This reflects the benefits associated with the accelerated adoption of our peer subscription pricing model as well as the expanding <unk> for <unk> evolve Express.
Based on the strength of our revenue outlook and our improving gross profit expectations. We now expect adjusted EBITDA to range between negative 53, and negative $58 million compared to our previous forecast of negative 55 to negative $60 million.
Finally, we expect to exit the year with net cash in the range of $110 million to $120 million, which compares favorably to our previous models that called for ending net cash of between $100 million to $110 million.
I will remind investors that we had previously expected to end 2023 with gross cash of about 165 to 175 million, which included debt of about $65 million.
That debt facility with STB was solely to support the purchase of involve express for use by our full subscription customers.
As previously disclosed we elected to terminate that debt facility at March 31.
And pay off the debt outstanding balance of $30 million.
We of course wont be drawing down an additional $35 million. We had previously planned for the balance of 2023.
We have many end customers that prefer buying the equipment upfront, particularly in our K 12, and health care verticals.
That can be due to grants funding requirements donor preferences or simply business capital planning.
Our commitment to our customers' needs extends to the way we structure customer contracts. Our goal is to be agnostic on the sales methodology requested by our customers and eliminate friction in the selling process.
Our expanded partnership with C. T helps us achieve that balance.
Our reseller partners will now go direct to <unk> for any upfront hardware purchases and C. T will in turn pay a hardware IP license to evolve for each unit sold.
The reseller will continue to place direct orders will evolve for the use of the software under a recurring revenue model.
The net of all this is that we will likely be purchasing fewer systems for a full subscription customers, who we expect will now purchased hardware upfront using the C. T just distribution model option.
We also expect to see accelerated cash receipts associated with the related hardware IP license fee that is part of our new model with C. T.
This expanded partnership is a benefit to our customers and can pave the way for higher gross margins than a pure subscription model alone.
To reiterate Peter's earlier comments, we remain very well capitalized and expect to reach cash breakeven with between $75 million to $100 million and net cash.
So in summary, we had a solid first quarter highlighted by strong revenue and gross profit, which coupled with the strengthening leading indicators in the business gives us the confidence to raise our outlook for the remainder of the year.
Longer term, we believe there is an additional leverage in our business model, including a faster route to profitability than we had previously anticipated and we look forward to sharing our upgrade updated views on that during our upcoming analyst day on may 25th more.
More to come then.
With that I'll turn the call back over to Brian .
Thank you Mark at this time, we'd like to open the call up for Q&A again, we're going to ask participants to limit themselves to one question and one follow up.
Ladies and gentlemen, if you'd like to ask a question. Please press one zero at this time.
Sure tone, indicating that you've been added to the queue. If you press one zero second time that will remove you from the queue. Once again for questions. Please press one zero.
With Craig Hallum. Please go ahead your line is open.
Great. Thanks for taking my questions.
Great job on the quarter the unit number was.
Staggeringly good.
And it's good to see all the metrics going forward going up so just I think the one maybe missing.
Part of the forecast that we're thinking about is your expectations on unit growth. This year I think you've talked about doubling units this year.
I don't know if thats been raised obviously you I think you hinted towards in the fourth quarter call.
Seasonality in the first half.
Its happening slower certainly didn't see that in Q1, you had a very strong Q1. So just kind of what are you thinking about unit growth and then a follow on to that is with the new seating arrangement I know youre talking about more of a mix shift towards subscription.
Do you still think that is the case for the year and any insight there and then talk a little bit more about how much of those direct purchase units do you think will go through CET during the year. Thanks.
The market and we're off to a very good start there.
We're still learning a lot about our business and as you know over 50% of our business is coming from schools. So we traditionally and we saw this last Q3, we traditionally saw a very strong Q3, when we're deploying lots of systems into schools before they open up for the school.
New year. So we expect the same thing we wanted to take a conservative view on that until you know until we're there. So we feel very good about being north of 4000 units and if we see ourselves doing better than that well, obviously when we get there will we will be able to describe that to you, but we're taking a conservative approach.
But we're confident in.
The 4000 units that we've outlined.
And as it relates to CE Mark once you pick that one up yeah sure Chad again welcome to the call.
In terms of the mix shift that we're seeing in the business we have been.
Pushing towards pure subscription.
Which is when we rent the hardware and the software and Thats really it.
To replace over the long term the the legacy method.
Our customers purchase directly from us, but we have recently I think.
Come up with a program with Columbia attack.
Which is distributing the hardware now for us.
That will allow the customers to buy that.
We will see that come into play.
By the end of this quarter, we'll start to see some activity and then it will grow in the Q3 and Q4 timeframe.
Our anticipation is that we.
Your the performance of the industrial space.
Is that something that you originally factored in to your estimation of your of your opportunity in if not has that has.
Is that has that opportunity expanded what do you think your Tam is now the second question is gonna be unprofitability. So I know you have some plans for next year.
To improve the cost.
Costs, well well you did on the manufacturing side that may shift a little bit now, but I know there is some embedded higher margins on your balance sheet is that going to impact your well how will that impact your gross margins going forward into next year.
Sure. So so hopefully we're going to see you issue with the at the Analyst Conference later in the month, we're going to talk a lot about the Tam and the vertical market sizing there.
Both of them from a high level as we think about this year, we have a we have a target market as you know, there's an $18 billion Tam that we're chasing that's undeveloped places for express we've targeted for the next couple of years the high risk states the ones that are.
Having the most gun violence.
The high risk verticals like schools.
Stadiums and hospitals industrial warehouses were not part of the original target Tam and we expect that to come on later on in the year. So our expand our Tam is expanding and the what we normally do as we get penetration in a certain vertical we add virtu.
<unk> experts, we have an expert team of former administrators and superintendents for education.
That are operating at a very high level in terms of talking to our customers and helping our customers with their layered security same thing with health care. We just hired a healthcare executive to help us really penetrate the market and we see later on this year and next year, adding somebody with <unk>.
Industrial warehouses, so we see that as a big future market and we're starting to see it have a difference in our business early enough in this year, we feel good about it the other vertical which you know we added a expert in his professional sports. So we have a team of people from.
The industry that are driving that so that's our methodology identify a key vertical start to get penetration bring subject matter experts and expand the Tam we see industrial warehouses.
Spanning our Cam later on this year and well into 2024.
And the second part of your call was on your question was on the manufacturing side and the margins we might see let me let me just take you through how we're thinking about margins.
For the year, we raised our guidance to the 35% to 40% range and coming out of Q1 were about 27% I think we expect to see continued gross margin appreciation throughout the year and.
And we will likely exit the year higher than the range that we gave.
To actually achieve that range and thats happening for a couple of reasons. The first is we obviously had a headwind with our legacy product sales, which we're doing less of.
Unexpected do less of every quarter going forward this year.
Also doing more subscription business and the subscription business tends to be in the ballpark of about 60% margins for us because we do have the cost that we put on to the balance sheet and we depreciate that over the period of the contract along with having some other non product costs in our Cogs in the third element of the story really is is this <unk>.
Distribution model, where we're really the benefactor of a license that comes from them selling the hardware because we've designed the hardware and we get that license.
And to the software the recurring software so that those deals will probably be in the 80% ZIP code in terms of how the margins will play out so the combination of those things give us confidence in the margin continuing to rise and to your point about about that embedded high.
Margin we are we are.
About and probably the top of the sixth inning of actually moving towards our cost down efforts on our on our product.
Our efforts on <unk>, which is about 95% the same product as our original one was really to design it.
For better quality better hardening really take everything we've learned over the past two years and design it into the product in terms of mobility and other and other factors as well and we're projecting at this point at least a 30%.
Decline in the cost for that that will that won't benefit us until next year and I'd say that that benefit probably would be in the range of about 7% to 10%, but I think the most important thing here is really the C. T model that we're going to be doing this distribution model.
As key going forward and it actually helps with it.
It actually helps with some of our margins and profitability I think we've been pretty vocal about thinking that we could be.
Profitable or at least cash neutral and the end of 2025% to 26 period, we believe we're bringing that in.
It's at least six months, but potentially more we're still refining that model and we expect to talk about that in earnest more on analyst day.
Awesome. Thank you guys I will see you on the 25th.
If you get a chance before the end of the call can you just explain the revolving door in that industrial warehouse situation.
Sure we have an open API.
That can connect to other access control systems.
Video surveillance systems, and with that API, if if and the sale of it comes through and we determined they have a weapon. We can actually lock the door create a man trap and then have a security person a resolve the issue so part of being a digital platform allows us.
To connect to the origin of this thing.
Physical security infrastructure, that's there and turn styles and doors are example of that.
Awesome. Thank you Peter Thanks, Marc Alright. Thanks. Thank you. Thank you.
Once again for additional questions. If you have not already please press one than zero to join the queue.
Next we're going to go to a Brent nobu.
<unk> with Cantor Fitzgerald. Please go ahead.
Hey, guys. Thanks for taking my question and congrats on the great quarter, I guess first on IRR.
It increased by any amount sequentially more than.
The sequential increase in the fourth quarter, you added kind of less new installs in the quarter. So I guess can you just walk me through how that dynamic unfolds.
Absolutely Brett and welcome to the call.
We are in terms of they are quarter over quarter, we effectively.
<unk> hits, our books, when we actually install systems and we we've seen a stronger.
A stronger balance of of full subscription deals.
Those are all <unk>. So when we some of our legacy purchase deals the purchase portion of the hardware it wouldn't be considered.
Only only the only the recurring software revenue, but in the case of our peer subscription business, where we're renting the system and we're renting the software that's all <unk> and we saw like we said in the call about 60% bookings.
Weighted in that direction, which is more than we've seen in.
In the history of the company.
Got it that helps and then just on the kind of the IP license fee that you guys are going to receive can you I guess go a bit more into that like how much is that going to be.
Is that sort of the street kind of 100% margin for you guys and then I guess on the flip side or would there be no kind of product or hardware cost of revenue that you guys would be recognizing as a result of this partnership.
Yes, we have.
We've gotten into a relationship with the Columbia tack on the distribution side.
We haven't disclosed exactly what the license amount is but they're charging their charging a cost that's.
I would say.
Market neutral out there to our clients and they're covering their costs and they're taking a piece and then they are paying their I would say the residual of that.
Yeah, and a license fee to us.
So the economics are good for us from a perspective there.
The the product cost against that are effectively zero, we're just getting the license, but I want to remind you that that about a third of the cost that we have in our cost of goods sold are above the line our non product costs, we have people in manufacturing support and services. So.
Overall, and that's why we talk about a blended number between the IP hardware and the service.
In the distribution model as being about 80%.
Does that help.
Yes that definitely does help and maybe if I can sneak one more in there on yes.
Yeah, I mean, we're not we're not talking about let's talk about the first half in the second half, but we're not really getting into the quarter side, but.
We're still we're still transitioning.
With the <unk> model and remember we're going to get in totality, we're gonna get less revenue from the Columbia Tech model, but we're going to get stronger margins out of it. So I don't think you'll see from the first half of the year to the second half of the year. Some some some growth in revenue, but but as we transition there won't be.
It won't be on a one for one basis.
That said I think that you know if we were looking at seasonality right now we would probably be.
And in the in the in the mid <unk> for first half revenue in the mid fifties for second half revenue.
Okay.
Any color on that.
I think let me give you some long term color because you can think about the time over that as a business. We have three lines of revenue that we're reporting right now it's the product revenue. It's the subscription revenue and this is the service revenue our goal is to reduce the product revenue by no longer.
Doing the legacy deals, we'll still do one from time to time there'll still be demos will still will still sell some accessories. So I would expect long term our revenue to move to about 5% to 8% and the product line over the longer term.
On the service line, that's where we're going to capture all of our license revenue and we also will have revenue coming off the balance sheet from some of our legacy per purchase contracts, but I would expect that line to kind of settle in at that 15% to 20% level that service line.
The remaining the remaining approximately.
70%, 65% to 70% will go into the subscription line long term and Thats, because we were either going to be doing deals that are pure.
Pure subscription, where it's where it's 100% recorded in that line or the subscription portion of our Cte distribution deal, which will also be recorded and service.
Overall, I think our business will go.
They'll tend to be 80% to 85% and 15% to 20% license license over the long term.
Yeah.
Got it.
And move on to Brett Thanks, so much.
Thanks.
Yeah.
Colors here.
Alright, well next call. Our next question is coming from Mike Latimore with Northland Capital. Please go ahead.
Hi, this is.
On behalf of Mike Lattimore, I think you had an international win recently, maybe give some color on what are the prospects for more international growth.
Sure so.
Look we're.
We're focused this year, primarily in North America, we have a gun violence epidemic in North America, we have more guns. Here then we have people and we're really really really good at detecting tons. So we're focused here and that's where we think the accelerated growth having said that we do.
Have customers in other parts of the world that we've been working with the last couple of years, both in Asia Pac and in EMEA, and we expect to expand their in earnest in the next couple of years, but it's not a priority for the company. Today are also you should note that the threat vectors different in other parts of the world is.
Well right in certain parts of Europe like the U K. They have more of a nice problem then they have a gunman problem in Asia Pac its explosives. So we're going to make sure that we get our go to market absolutely right here on the thing that were.
Wonderful App, which is identifying guns and then we will begin to expand our presence through channel partners in the international markets and we have a lot of confidence.
That we're going to have a strong business over there, but our focus right now is in North America, where the biggest problems are.
Alright, and also some color on the sales cycle as the sales cycle has been shrinking.
Yeah. So our sales cycle is between 90, and 100 days and I would say that our sales cycle has been contracting both because we have this force multiplier effect that our systems are out invisible.
<unk> in the market. So people are seeing us in stadiums all over the country, whether it's baseball or football or a lot of the biggest iconic stadiums in theme parks theyre seeing us and the experience is so different.
Into a stadium today for example, and not standing in a long line to get screened like Youre in an airport. We make those lines go away and that is often the catalyst for people to to say Hey, This is different I want to invite evolve to our school.
Or to our hospital and understand how you can help us so that's.
Really helping us today in terms of our visibility.
And our growth.
Perfect Alright, thanks for that thank you.
AT&T I believe we have time for one last call.
Yes.
Our next question comes from Robert Galvin.
With Stifel. Please go ahead.
Hi, This is Rob on for Brad Reback, Thanks for taking the question.
If you had previously mentioned a price increase starting January one and I'm wondering if you could speak to how much of an impact that had on Q1 performance on both the top and bottom line. Thanks.
Thanks for the question Rob.
We did have a price increase at the beginning of the year.
We really kind of reset our msrp's and we continue to use a discounting methodology to kind of come into pricing, but it was.
It was probably I would say net net it was a little north of CPI as we kind of honed in on.
Different verticals, but.
And we have seen that come to fruition.
Okay.
Great. Thank you.
Thank you Rob.
We're going to just turn it back over to Peter George for a couple of closing remarks sure. So look we had really solid Q1 results everyone highlighted by strong growth in revenue.
And <unk> as we mentioned, we delivered strong growth with customer acquisitions, and our expanding deployments. We continue to see a lot of evidence and leverage in our business model. We remain on track as we said for our growth plans in 2023 of this year and we're focused on doubling.
And we are well capitalized with enough cash to get to cash flow breakeven with $75 to $100 million of cash still left in the bank. So I want to thank everyone, who joined US today, when I think our 600 or more customers who are have security.
She knows that worked with us to make their venue safe every day and I finally want to thank our 255, Evolver, who wake up every day devoted and dedicated to making the world safer than people safer. So thank you everybody.
Terrific before we close one last comment analyst day in May 2015, any questions on that please feel free to reach out at IR of all technology Dot com.
Yeah.
Yeah.
And ladies and gentlemen that does conclude your conference call for today, we do thank you for your participation and for using AT&T event conferencing.
May now disconnect.