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spk01: Good afternoon and welcome to the Evolve Technology Fourth Quarter Earnings Results Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. We ask participants to limit themselves to one question and one follow-up question. As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce your host for today's call, Brian Norris, Vice President of Investor Relations for Evolve Technology. Please go ahead, sir.
spk03: Thank you, Alicia, and good afternoon, everyone, and welcome to the call. I'm joined here today by Peter George, our Chief Executive Officer, and Mario Ramos, our Chief Financial Officer and Chief Risk Officer. This afternoon, after the market closed, we issued a press release announcing our fourth quarter results and our business outlook for 2022. This press release is available on major news outlets as well as on the IR section of our website. Please note that during this afternoon's call, we will be referring to an accompanying investor presentation, which can also be found on our investor relations website. As highlighted on slide two of today's presentation, during today's call, we will make forward-looking states within the meaning of Section 27A of the Securities Act of 1933, 21E of the Securities Exchange Act of 1934, and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. 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 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 in our prospectus filed with the SEC on September 3rd, 2021, and 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 March 14, 2022. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance, and events and circumstances Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, including adjusted gross profit, adjusted gross margin, and adjusted EBITDA, which we believe provides an 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 from GAAP to non-GAAP metrics for our reported results can be found in our press release issued today and in the accompanying investor presentation. Finally, to provide investors with incremental insight and transparency, today we will begin sharing two additional performance typical of a SAS business, ARR and RPO. ARR, or annual recurring revenue, represents our subscription revenue as well as the recurring service revenue related to purchase subscriptions normalized to a one-year period. RPO, or remaining performance obligation, reflects the difference between contract value and revenue recognized for installed units as of the end of the quarter. DCD and RPO should be viewed independently of and not as a substitute. or a forecast of revenue or deferred revenues. Please keep in mind our definition of these measures may differ from similarly titled metrics presented by other companies. With that, I'll turn the call over to Peter.
spk02: Peter? Thanks, Brian, and thank you, everyone, for joining us today. We're pleased to share the highlights of our fourth quarter and full-year results, as well as our strategy and goals for 2022. But before we do that, let me take a moment here on slide four to remind everyone of our mission, which is to democratize security, making venues, facilities, and people everywhere more secure and making the world a safer and more enjoyable place to work, learn, and play. Moving to slide five, there are powerful secular growth trends that continue to drive the need to digitally transform facility safety and the visitor experience. The current accelerating trends in firearms ownership, pandemic awareness, and anxiety are converging and driving increasing focus on visitor safety and the visitor experience. We know the public is demanding a better way to gather again. They do want to visit venues again, but they want to do it safely, safe from the threat of gun violence and safe from health risks like COVID. They want to have a frictionless and touchless venue experience, and they want that experience to be personal, informed, and smart. Moving to slide six, I believe today's imperative and urgent need is to make everyone and everywhere safer. It's our shared belief that the pandemic has forever changed the way we live, how we work, and where we play, that the world has become a more unpredictable and scary place, and that with that, people have an elevated sense of anxiety about gathering again, and that's not gonna change anytime soon. We know that gun violence in the United States is at historic highs, as evidenced by close to 700 mass shootings in 2021. I personally spend lots of time in the field listening to our customers, and I'm sure about one thing. They're relying on us, on Evolve, our solutions, to help make their venues safer and their visitors happier. This is a moment, a unique moment, as venues and companies are making the architectural shift from analog to digital, and Evolve is leading the digital transformation of physical security. As you know, Evolve developed the first and only AI-based weapons detection platform that prevents threats from entering places they shouldn't, while preserving the visitor experience as people walk right in at the pace of life. To our SaaS-based description model and unprecedented data set, we can finally democratize security and make it available to anyone who needs it. This is our mission at Evolve and why I feel so strongly about our business today and about our future tomorrow as the human security company. The results we're reporting today reflect that intersection of our mission and our imperative to meet the moment we now have. Moving to slide seven. Our fourth quarter results were highlighted by strong new customer acquisition, the introduction of demand-driven product innovations, and acceleration with our channel partners. We reported total revenue of $6.8 million in the fourth quarter, up 236% year over year, and full-year revenue of $23.7 million, up 395% over 2020. As Mario will describe in his remarks, we hadn't adjusted in revenue recognition in the fourth quarter of 2021 as we determined that our SAS offerings have now taken on a greater portion of our offerings overall value delivered to our customers. This in turn requires us to ascribe more value to our subscription revenue. We believe this is a positive transition for a growing SaaS business like ours. Despite this change, we still reported revenues for the year that were beyond the top end of our guidance range while adding greater visibility into our expected forward revenues. We added 84 new customers in 2021, which was seven times the number of our new customers added in 2020. We defined subscriptions or deployed units as active revenue generated of Evolve Express under contract. We grew subscriptions from 214 to over 700 in 2021, reflecting growth of 229% year over year. We had no subscription churn in the fourth quarter and have not had any renewal up to yet. Finally, total contract of orders booked for TCV was $17.9 million in the fourth quarter, up 201% year-over-year, and was $53.8 million in 2021, up 148% year-over-year. Turning to slide eight. We were honored to welcome more than two dozen enterprises to our customer base in the fourth quarter. While others in the security screening market cite number of pilots or RFP activity, we're grateful to have added 84 new customers in 2021 to bring our customer base to over 200 at the end of the year. Our pace of new customer acquisition accelerated throughout the year. In the fourth quarter, we again saw a broad diversification of our customer acquisition activity. As you can see on this slide, some of our newest customers include DHL, Birmingham Racecourse Casino, Champaign Schools, Fall River Public Schools, Florida Theater Performing Arts Center, the Fox Theater in Atlanta, the Jalaz Center, the Monterey Bay Aquarium, the North Shore Hospital, the Van Wessel Performing Arts Center, and the Woodruff Arts Center. Twenty percent of our TCV came from professional sports, vertical, as we secured another NFL franchise, our fifth pro football team, as well as another MLB team, our fifth professional baseball franchise. We now have 15 percent of the NFL and nearly 20% of the MLB are now Evolve Express customers. We also landed an important opportunity by winning the Capital One Arena in Washington, D.C. Nearly 15% of our TCV in the fourth quarter came through K-12 education markets, where we closed six transactions. We unfortunately saw acceleration in that market immediately following the school shooting in Oxford, Michigan. Ten percent of our TCV in the fourth quarter came from tourist sites, including the Monterey Bay Aquarium and some of the most iconic venues in the United States. We saw important contributions from the healthcare market, which includes hospitals and clinics, and represented about ten percent of our fourth quarter TCV. We also saw continued growth in the hotel and casino market, which represents about 10% of our fourth quarter TCV. Three other vertical markets each contributed about 10% to TCV in the quarter, including performing arts centers, convention centers, and factory warehouses. Let's turn to slide nine. to update you on our go-to-market efforts, which consist of a direct quota-carrying sales force, as well as a growing network of channel partners that help extend our reach in certain geographies or vertical markets. We've been clear about our intentions to scale the company with and through partners in an approach we refer to as channel-centric. Our goal at the beginning of 2021 was to secure 15% of our TCV with partners. We ended up doubling that to 30%, strong evidence of both customer demand and partner engagement. 45% of our fourth quarter TCV involved a partner, and we're now starting to see transactions close with channel partners without any involvement at all from us. We are seeing broad activity across three dozen authorized channel partners and several strategic global partners in Johnson Controls, Stanley Black & Decker, and of course, Motorola Solutions, where incidentally, the number of qualified opportunities in our pipeline more than doubled in the fourth quarter to over 500 prospects. Turn to slide 10, highlights the growing separation that we're creating between evolved technology and the rest of the competitive market. There are several unique elements of the evolved story which are highlighted here on the left side of the slide. We are currently commercially screening more than 20,000 people every hour or on average about 500,000 people every day. That volume is important when you consider that we're collecting more than 1.5 million data points for each of these visitors. Said another way, we're collecting about 750 billion security data points every single day across more than 200 venues in more than a dozen vertical markets. Simply put, we've created what we believe to be the single largest data lake in the security screening industry. As a result, our customers turn to us to power their digital thresholds. We're digitally transforming security by and with critical capabilities in such areas as weapons detection, crowd assessment, mass notification, and people analytics. These capabilities enable us to continually raise the bar of innovation and bring better and better products to the market. And in time, we believe this will enable us to optimize average revenue per unit, or ARPU, and maximize renewal rates as and when customers reach the end of their initial SAS contract. By having more data and better products, we believe we're able to deliver a superior value proposition to the market. We're able to classify REST, based on this unique, large, and rapidly growing data set that makes it possible, with our advanced algorithms, to improve detection accuracy over time. We believe this enables Evolve to deliver an improved security posture, which makes our customers' venues safer than ever before. In addition, we also deliver a superior visitor experience as our customers' customers can enter the venue without ever slowing down, without ever divesting of their personal items, and without ever forming a single file close contact line. We strive to deliver significant operational efficiencies that drives up to 70% cost savings for venue operators. Finally, we're able to provide venue operators with a higher level of valuable data which are delivered automatically and available on demand via Evolve Insights, our analytics platform, to enable our customers to make better security decisions before, during, and after events. Before I turn things over to Mario, I want to turn to slide 11 to share some thoughts as to some of the near-term and longer-term drivers of our business, which we believe position us well to fulfill our mission of democratizing security for all. Several of the near-term drivers of the business include the reopening of facilities, and that's happening right now. Facility operators are looking for a new and safer way of welcoming visitors back, and certainly Evolve Express does just that. We will look to balance this demand with the impact that COVID has had and likely will continue to have on both our supply chain as well as our ability to access customers' premises to install booked units. Other near-term drivers are expected increases in quota-carrying sales executives, the increase in quotas for 2022, and the price book increases we have implemented to gain full value for our subscription offering while also offsetting the impact that increasing inflation has had across nearly every industry. Another driver is our channel-centric strategy, which continues to show growing momentum. We're expecting channel partners to be involved in as much as 40 percent of all opportunities in 2022, up from 30 percent in 2021. Switching to some of the long-term drivers of the business, first and foremost, The secular demands for strong public safety is more important than ever. Unfortunately, trends in gun violence are escalating, not abating. Second, we see a significant long-term opportunity for both with existing and new channel partners. We are making great progress, and still there's much more to do. We expect to benefit from ancillary revenue streams with analytics and digital tools, which we expect will drive average ARPU higher over time while also enhancing renewal opportunities. Finally, we anticipate new potential products that can drive deeper penetration of large untapped TAM segments. With that, let me turn things over to Mario, who will take you through our financial results, key trends, and our outlook for 2022. Mario? Thank you.
spk09: As Peter mentioned, we continue to benefit from strong secular growth trends. Highlighted on slide 13, revenue in 2021 was $23.7 million, up 395% year-over-year. It's reflected strong new customer adoption. Revenue is pro forma for a change in our revenue recognition assumptions would have been 25 million. This reflects the impact of the adjustment we had in the fourth quarter of 2021 to our standalone selling price assumption. That change is a result of the recent rollout of the newest Evolve Express platform and the advancements in the Evolve Cortex AI software. This change means that for accounting purposes based on ASC 606, a greater percentage of the value of our customer contracts is allocated to software versus hardware. This impacts the manner and timing of our revenue recognition for accounting purposes, though I want to be clear there have not been any changes to the way we market and sell our product. Had this change in revenue recognition not been made, our revenue in 2021 would have been $25 million, instead of the $23.7 million we actually reported. We have included a table with more information in the appendix. We reported total recurring revenue, which reflects both subscription revenue and the recurring portion of the service revenue of $9.8 million in 2021, reflecting growth of 180% over 2020. We're also highlighting here annual recurring revenue, or ARR, which represents monthly subscription revenue and the recurring service revenue related to purchase subscriptions normalized to a one-year period. ARR at December 31st, 2021 grew to $12.9 million, up 220% over December 31st, 2020. TCV, or total contract value of orders booked, was $53.8 million, reflecting growth of 148% year over year. TCV will convert to revenue as we install Evolve Express at customer sites. We no longer plan to guide to TCV, which we believe is not the most useful indicator for performance because it does not consider the growing importance of installation activity. Finally, we disclose remaining performance obligation, or RPO, which 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. RPO at the end of the fourth quarter of 2021 was 40.2 million, up 200% year-over-year. Investors should expect us to regularly report on ARR and RPO, which are indicative of the progress we continue to make. Flipping to slide 14, we're sharing the additions, which is subscriptions deployed, as well as ending number of subscriptions deployed. In time, we would expect to add churn and renewal activity. However, we have not experienced any churn given our contracts are four years in length. As you can see here, we added 136 additions in the quarter and ended the year with 703 subscription deployments. In addition, We ended the year with approximately 128 units in installation backlog. These represent valid purchase orders, which have been included into TCV, but no subscription and service revenue has yet been recognized since the deployment has not yet been completed. It is important to point out that Omicron-related restrictions, either among our customers or among our personnel, impacted our ability to install units in the fourth quarter of 2021. As we move to slide 15, here's a deeper look at the trends in ARR and RPO. As you can see here on the left, ARR was up 220% year over year in 2021. This continues to reflect the strong new customer adoption we are seeing, as well as the expanding deployments we continue to see across our customer base. On the right, you see RPO, which again reflects the difference between contract value and revenue already recognized for installed units as of the end of the quarter. RPO grew 200% year-over-year to $40.2 million. Also highlighted on the chart on the right is the value of the backlog, which is the value of units that are fully under contract but are yet to be deployed. As you can see, we had another 10.6 million of contracted revenue associated with units that had not yet been installed as of December 31st, 2021. So in total, about 50.8 million of RPO plus backlog. Turning to slide 16, I want to briefly discuss our financial highlights. As previously discussed, total revenue was 6.8 million in the fourth quarter. up 236 percent year-over-year. For the full year, total revenue was $23.7 million, up 395 percent over 2020. We reported gross margin of 4 percent in the fourth quarter and 28 percent for the full year broken down as follows. Product gross margin was negative 45 percent in the fourth quarter and 10 percent for the full year. Our fourth-quarter product gross margin was impacted by several one-time expenses, a $1.6 million impairment related to legacy inventory of our first-generation product, Edge, a $600,000 purchase price variance for product build, as well as some other miscellaneous one-time charges for about $200,000. In addition, supply chain challenges impacted costs as we continue to prioritize availability of finished product. Excluding these adjustments, product gross margin would have been 8 percent and 28 percent for Q4 21 and fiscal year 21, respectively. Subscription gross margin was 45 percent in the fourth quarter and compared to 31 percent in the fourth quarter of last year. For the full year, subscription gross margin was 30 percent. Total operating expenses were $22.3 million in the fourth quarter, up 128 percent year-over-year, and $60.7 million in 2021, up 115 percent over 2020. The primary drivers of the increase were headcount additions across the company. most notably in revenue-generating sales as well as technical talent for our engineering team, stock-based compensation expense, transaction costs associated with the offering, and a modest impairment charge for the write-down of certain assets. We exited the fourth quarter with 176 employees compared to 62 employees at the end of 2020. Our loss from operations was $22 million in the fourth quarter, up 136 percent year-over-year, and was $54 million in 2021, up 101 percent compared to 2020. Finally, we reported net income of $2.6 million, or two cents per diluted share, compared to a net loss of $9.5 million, or $1.06 per share in the fourth quarter of last year. For the year, we reported a net loss of $10.9 million, or 15 cents per diluted share, compared to $27.4 million, or $3.07 per share in 2020. Briefly now on the balance sheet, we ended the quarter with approximately $308 million in cash and cash equivalent, down about $26 million from the third quarter. This use of cash reflects the fourth quarter Q4 operating loss of $22 million, the repayment of $5.4 million on our revolving line of credit, as well as the continuing investment we're making to build inventory in anticipation of our second half 2022 plan. As we move on to slide 17, you can see the leverage of our subscription model. As highlighted on the slide, we are reported we are reporting adjusted recurring contribution gross margin of 80 percent, which is a record high for the company. For context, recurring revenue includes subscription revenue and service revenue for all periods presented. Recurring adjusted gross profit and gross margin excludes one-time items and depreciation and amortization, which we believe provides a more meaningful representation of contribution margin. Moving on, over the next few slides, I want to share with investors the highlights of our 2022 business outlook and the rationale and assumptions behind it. I'll remind investors that these forward-looking statements represent our views only as of today. Starting here on slide 18, our current expectations are for full-year revenue of between $29 to $31 million. which would reflect growth of about 25% year over year. That growth would have been 58% pro forma for the change in SSP in 2021. We expect ending ARR December 31st to more than double in 2020, excuse me, 2022, to between $27 to $28 million. We expect operating expenses to increase to 94 to 96 million in 2022. We expect to continue investing across the business, mostly in revenue generating and revenue supporting headcount, as well as engineering resources to continue to extend our leadership position. We expect our operating loss to range between 82 to 84 million in 2022. Finally, we expect adjusted EBITDA to range between negative 65 and 67 million in 2022. Moving on to slide 19, I want to provide some context as to our investment priorities in 2022. Starting with R&D, we're focusing on next generation Evolve Express to deliver significant cost reductions and drive gross margins higher. We're also investing in ancillary products designed to drive our group of existing clients higher, while also enhancing renewal opportunities. In the area of sales and marketing, we're adding to our number of quarter-carrying sales executives, which will position us well for growth in 2023 and beyond. We're balancing this investment with our channel strategy to put us in the best position to accelerate sales. Turning to G&A, we continue to build the company's infrastructure to manage our reporting and controls environment, as well as to support current and future growth. For example, we are in the final stages of our NetSuite implementation, which is set to go live in the second quarter of 2022. Finally, we're making the necessary investments in public company initiatives typical of a company of our size. Turning to slide 20, we want to share some additional insights into our projected use of cash in 2022. We expect an elevated cash burn into 2023 as we ramp up investments and emerge from supply chain constraints. We expect elevated operating losses in 2022 as we continue to build our public company infrastructure and to make the necessary investments in sales and marketing. We expect to meaningfully leverage both investment areas in 23 and beyond as we further scale the business. We have not been immune to COVID-related supply chain challenges that have persisted over the last 12 to 18 months, which have driven our hardware costs higher. While we've been able to take advantage of our balance sheet to, in certain cases, pre-buy certain hard to find parts, we have not yet been able to scale sufficiently to recognize significant purchasing benefits. However, we are working on and investing in redesign efforts with the goal of reducing hardware costs by 40 to 50 percent. We are continuing our efforts to proactively build inventory to support our growing pipeline and to meet expected demand in the second half of the year and into 23. To that end, we expect to end 22 with more than 250 Express units in inventory compared to approximately 75 units in inventory at the end of 21. Another important use of cash is, of course, the support of our pure subscription customers. When customers choose our pure subscription model over our purchase subscription model, we are fully funding the equipment costs and retaining the title to the Evolve Express platform. We then recover that equipment cost with a higher subscription value over the term of the non-cancellable subscription contract. We are currently evaluating third-party financing sources, which would significantly reduce our cash consumption needs. Without that program in place, we expect to use as much as $15 to $20 million in 2022 to support equipment costs of our pure subscription offering. In light of all these considerations, we currently expect to end 2022 with approximately $220 to $230 million in cash. Turning to slide 21, I wanted to share with you a few additional modeling considerations as you think about 2022. We continue to see an impact on installations here in the first quarter of 2022 due to Omicron, and since installations are the most important element of revenue recognition, We expect that will impact the linearity of both product and subscription revenue in the first quarter. We expect both ARR and revenues to further accelerate in the second half of 2022 as we continue to add additional customers and subscriptions. We expect a mix of installed units to be 70% pure subscription and 30% purchase subscription. Finally, we're modeling an ending install base of subscriptions of between 1400 to 1500, approximately doubling our 2021 ending subcount. Again, due to some of the Omicron impacted challenges of installation in Q1, we expect that the rate of installations will accelerate in the second half of the year. With that, I'll turn that back over to Brian.
spk03: Thank you, Mario. At this time, we'd like to open the call up for Q&A. Again, we ask participants to limit themselves to one question and one follow up.
spk06: 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 zero command. If you are using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, you may press 1, then 0 at this time. And we'll first go to the line of Saul Eyal with Collin. Please go ahead.
spk08: Thank you. Good afternoon. So just to recap, What would have been the potential revenue guide for fiscal 22, but for the accounting adjustment that you're taking the company through?
spk09: Yeah, 22, we didn't talk about an adjusted number in 22. What we said is if all of 21 had been adjusted, we had used the same SSP assumption that we used in the fourth quarter for the entirety of 2021, our guidance would have been a revenue growth of 58%. So if you look in the appendix of the earnings deck, you can see the lower revenue number that we're talking about of 19.7 for 2021. We didn't provide what 2022 would have been under the old assumptions.
spk08: Got it, got it. And as we think about fiscal 22 and the investment that you're putting into the company, I know typically, maybe you're not guiding towards headcount, but how could we be thinking about fiscal 22 ending from a headcount perspective, give or take, with some sort of a range?
spk02: Hey, Shaul. It's Peter George. How are you?
spk08: Hey, Peter. I'm good. How are you?
spk02: Good. We hired about 100 people in 2021, so we had a big investment in people and infrastructure during the year that we went public. Our plan for 2022 is to add about 70 to 75 more heads, so we should be close to you know, 200 people, 250 people before as we exit 2022. Got it. Thank you for this, Connor. You're welcome.
spk06: Thank you. Next, we'll go to Mike Lattimore with Northland Capital Markets. Please go ahead.
spk04: Thank you. Yeah, the diversity of bookings look great this quarter. I guess in terms of just the sales environment? What are you seeing from a sales cycle standpoint? Are things, you know, moving quickly, slowing, you know, relative to six months ago?
spk02: Yeah. How you doing, Mike? It's Peter. Hi, Peter. Yeah. So, you know, I think the last time we spoke, we said that our sales cycle was contracting to about 90 days. It's still there. Two things changed for us in Q4 and in the beginning of Q1. In Q4, Omnicrom showed up in the middle of December. We moved from having most everybody in the office to being fully remote again, and unfortunately, so did our customers. So our customers were back home, and we saw a slowdown a little bit in TCV, but mostly in the ability to deploy systems. So the sales cycle didn't change, but our customers went home, and it was hard to reach them. And of course, when they got their facilities down, we couldn't install systems. So we ended up deploying 136 systems in Q4, but we left about 100 systems in backlog in TCV exiting the year. So we had pretty robust bookings. It's just we couldn't get them installed. So that's one thing. The second thing we did in Q4, and this really talks to the sales cycle, we mentioned we had a significant investment in the channel in Q4, and they represented a significant portion of our business. That slowed down. our sales cycle by about 30 days because we don't have direct control of the channel like we do when we work directly. So we're now planning as we go forward through that experience, we're planning on making sure instead of having three times the pipeline to make our plan, we wanna have four times the pipeline and we wanna make sure we have an extra month to plan for because of the channel engagement part of the business. Having said that, you started out by talking about diversification. You know, we had a great quarter in K through 12 in healthcare, in municipalities, places we weren't traditionally in, and the channel helped us open up those markets. So it was a big investment to make in Q4. We know it's going to pay big dividends in 2022. Thank you.
spk04: And I guess in a lot of those markets you just mentioned, you're not really replacing a metal detector, right? You're kind of going in greenfield.
spk02: You bet. And so, as you know, a $20 billion TAM, $18 billion is greenfield, and all of these markets or places, it traditionally isn't metal detectors. So, you know, 90% of our deals continue to be uncontested. When we have to compete there, it's normally a metal detector company, and we like our win rate when we have to compete with them.
spk04: And then just on the accounting change, does that relate to just the purchase subscription model or the purchase subscription and product-only model?
spk09: Right. So the purchase subscription where we're selling equipment up front to a client is the one that gets impacted by that.
spk03: And, like, just to be super clear on this, this is us following GAAP. This is not about us changing rules. I mean, this is us adhering to generally accepted accounting principles in the United States. And so what we are finding is that a greater percentage of our revenue is attributable to our SaaS offering, which is a great thing for a growing SaaS business like ours. And so that's what you're seeing. This is a great thing long term.
spk04: Yeah, yeah, no, that makes sense. Great. Okay, thank you.
spk06: Thank you. Next, we'll go to Brian Ruttenbar with Imperial Capital. Please go ahead.
spk07: Yes, thank you very much. So I want to just clarify the guidance and how you're going to report going forward. Are you still going to have, because you mentioned or have written 29 to 31 million in total revenue and 27 to 28 million of that is recurring. Are you still going to have product subscription and services revenue, or is it all going to be subscription and then other category?
spk09: To be clear, Brian, it's not of that. The 27 to 28 annual recurring revenue is a standalone metric just taking annualized revenue for the last month of the year times 12. We expect December subscription recurring revenue to be in annualizing that. It's not One is a part of the other. The 29 to 31 represents the revenue it generates throughout the year from both product and subscription. And we continue to do that. There's no change at this time.
spk07: Okay. Thanks for the clarity. That was obvious. I appreciate you pointing that out. And then you talk, the second part of the question is also on financials. You talk about the first half being weaker than the second half. Can we talk a little bit about seasonality? I think that you had an extremely strong third quarter. Is that how you see it as the peak in the third quarter and then maybe a little drop off in the fourth quarter?
spk09: Yeah, I think that's probably a fair statement. We're still very early on. Obviously, we're learning about seasonality. But just by the sheer number of off days in the fourth quarter and distractions by clients because of the holidays, I wouldn't be surprised if we have a similar situation. pattern into this year.
spk07: Okay. And then in terms of the one-time charge that was related to, you know, the write-off of the, I guess it's the first generation evolved system, roughly 6 million, is that correct?
spk09: Not that big. It was 1.6. Yeah, it's basically they're the old generation units, most of them was based in the U.S., that we proactively swapped out for clients. Part of the reason why we did that is because the new units allow clients to have greater functionality on our software platform. And we were able to extend contracts as well. So there was a benefit to the company, but short term, it meant that we had to write off those units.
spk07: Okay. Is there any other older units that could be written off in 2022, or is this all cleaned up?
spk09: This is cleaned out.
spk02: Perfect.
spk07: Thank you very much for answering my question.
spk02: And Brian may remember that Edge product was our first generation product. It was millimeter wave, and it was a metered product, meaning you went through one at a time. Once we introduced Express, it was our second generation. Everyone wanted to go to that. And so we've allowed them to do that. So we have no more write-offs with Edge anymore.
spk09: Yeah. And Brian, just to be clear, we do still have some of those units in the field. They're about 75 units, mostly international. But again, we don't expect to be writing them off. They'll continue to operate. The U.S. was a different decision because of our platform.
spk07: Great. Thank you for the clarity. Appreciate it.
spk06: Thank you. And our last question is from Rob Galvin. Please go ahead.
spk03: Rob, it's Brian Norris. Your line is open if you wanted to ask a question on the call.
spk06: Rob, your line is open. Please go ahead.
spk05: Yeah, can you guys hear me?
spk06: Yeah. Yes.
spk05: Sorry, I think I was on mute. This is Rob Galvin on for Brad Reback. Thanks for taking the question. I'm just wondering if you expect to raise additional money or if you think that you can get to cash flow neutral with the current model?
spk09: Yeah, we do expect to get cash flow neutral. Rob, you know, not only do we expect to do that with the current improvement acceleration of the business, but we have a lot of flexibility to raise additional capital or slow the cash burn, like the third-party financing I talked about for some clients. We're really kind of at the early stage of evaluating that. Obviously, that might preserve cash for us to do even more things. But the bottom line is we don't expect to raise any additional capital.
spk05: Great.
spk03: Thank you. Rob, any follow-up question? Are you good?
spk05: No, that was it. Thank you.
spk03: Okay. Terrific.
spk02: I'm going to turn it over to Peter George, our CEO, for some closing remarks. All right. We want to thank everyone for joining us today. We're really excited about our performance in 2021 and very enthusiastic about the future of the company. So thank you, everyone, for joining us. We look forward to the next earnings call. Thanks, everyone.
spk06: Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Event Conferencing Service.
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