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spk02: Ladies and gentlemen, thank you for standing by. Welcome to the Evolve Technologies first quarter earnings results. At this time, all participants are in a listen-only mode. Later, there'll be a question and answer session. Instructions will be given at that time. Please limit yourself to one question and one follow-up. If you need assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I'd like now to turn the conference over to our hosts, Brian Morris, Vice President of Investor Relations for Evolve Technologies. Please go ahead.
spk07: Thank you, Dan, and good afternoon, everyone, and welcome to the call. I'm joined here today by Peter George, our Chief Executive Officer, and Mario Reynolds, our Chief Financial Officer and Chief Risk Officer. This afternoon, after the market closed, we issued a press release announcing our first quarter results and our business outlook for 2022. The press release is available on all major news outlets as well as on the IR section of our website. During today's call, we will make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and 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, including but not limited to, statements regarding our ability to meet our business outlook for revenue and profitability. All forward-looking statements are subject to material risks, uncertainties, and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from these forward-looking statements as a result of a number of risks and uncertainties, including, without limitation, The risk factors set forth under the caption risk factors of our annual report on Form 10-K for the year ended December 31st, 2021, as filed with the SEC on March 28th, 2022, and in other documents filed with or furnished to the SEC from time to time. The forward-looking statements made today represent our views as of May 11th, 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 reflected in those forward-looking statements will be achieved or will occur. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include certain non-GAAP financial measures, including adjusted gross profit, adjusted gross margin, adjusted EBITDA, and adjusted earnings, which we believe provide additional insight for investors in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. Before I turn things over to Peter, let me briefly highlight a few of our upcoming investor relations activities. On Wednesday, June 1st, we will be in New York for the Cowen Technology Conference, And on Tuesday, June 7th, we will be at the Steeple Investor Conference in Boston. If you are planning to attend either event and are interested in meeting with the management team, please let me know. With that, I'd like to turn the call over to Peter.
spk05: Peter? Thanks, Brian, and thank you, everyone, for joining us today. We're pleased to share the highlights from the first quarter as well as the trends we're seeing in our business. As the leader in AI-based weapons detection, we continue on our important mission of making everywhere and everyone safer every day. We're redefining how people think about security, and we are enabling our customers to create a safe and frictionless experience for all those gathering again. The secular trends that demand a new kind of security has become the urgent need for our society today. Evolve exists to meet that need and moment we find ourselves now in. We started the year with a strong first quarter results, which we believe position us well to deliver on our full year growth plans. The key takeaways are as follows. Revenue was $8.7 million in the first quarter, up 27% sequentially, and 118% year over year, primarily driven by strong demand in our key verticals, an increase in purchase subscription deals, and a continuing momentum with our channel partners. We added over 40 new customers in Q1, a new company record, including key wins at the Charlotte-Mecklenburg School District in North Carolina, the Aon Arena in the UK, the Dollywood Theme Park and Hard Rock International, and the New England Patriots of the NFL. Our total contract value of orders booked, or TCV, was $19.2 million in the first quarter, up 7% sequentially and 128% year-over-year. As we shared on our last earnings call, Q1 got off to a slower start due to the surge of COVID-19 cases from the Omicron variant and its lingering impact on both sales and installation activity. That said, We began to see signs of improving conditions in March, and we now believe the headwind caused by Omicron is behind us, though we're keeping a close eye on any further evolving sub-variants. We deployed 207 units, another company record, in the first quarter, which drove an increase in the number of subscriptions of Evolve Express from 703 at December 31, 2021, to 910 at the end of the first quarter. The strong activation activity reflected our ability to catch up and operationalize the unusually high installation backlog that we had as of December the 31st. To that end, it would not surprise us to see installation activity recede a bit here in Q2, but we believe we're tracking well to our goal of 1400 to 1500 subscriptions by the end of the year, which would further strengthen our market moat. While our primary focus continues to be on the U.S.-based facility operators, I'm pleased to report that 15% of our bookings activity in the first quarter came from our international markets, an area which we are starting to explore. We just surpassed 250 million visitors screened. We are now screening more than 500,000 people every single day, and every one of those scans enriches our product capabilities and analytics and underscores our technological lead in the market. We again saw increasing vertical market adoption of Evolve Express. We continue to see signs of accelerating demand in education, in healthcare, and professional sports as evidenced by a higher volume of opportunities and higher volume of seven-figure opportunities. Nearly 30% of our TCV came from the K-12 education market, our single largest market in terms of TAM and addressable facilities. We secured 10 educational-related customers, including the Charlotte-Mecklenburg School District in North Carolina, one of the largest school districts in the country, I think they're ranked number 18, with nearly 150,000 enrolled students. We closed that opportunity in Q1 and completed the deployment of 50 platforms within just a few weeks. And then a few days later, on our second day in use, our Evolve Express platform was able to identify a student who attempted to enter the district's Berry Academy of Technology with a fully loaded handgun. The student was stopped and arrested and thankfully, a potential tragedy was avoided. All the students and staff at the school were safe and the school was not evacuated or placed on a lockdown. Threats like this have unfortunately become commonplace in the United States. Our K-12 education activity, partner development, and funnel are accelerating as more school boards and school districts are acting to digitally transform their security operations and accelerate how they keep their students safe. We saw continued growth in the hotel and casino market, which represented about 17% of our TCV. We closed a large seven-figure deal in Mexico and this was one of the largest 20-unit deals in the company history. We closed this deal with Stanley Security Solutions. We also secured Hard Rock International and three regional casino operators. We're seeing more casinos returning to full pre-pandemic operations and are rolling out solutions that can enhance visitor security and visitor experience. Tourism and performing arts represented about 10% of PCB for the quarter, including a key win at the Aeon Arena in the UK, the same venue where, in 2017, a terrorist detonated an explosive device, killing 22 people attending an Ariana Grande concert. We're proud to be the new touchless security screening provider for that arena, which is one of the busiest venues in the world, and the largest indoor arena in all of Europe. The win is consistent with our go-to-market playbook, securing an iconic venue and a geography, then leveraging that as a beachhead for the future expansion in that market. The healthcare market, which includes hospitals and clinics, represented nearly 10% of our TCV, as we welcomed nearly two dozen customers who deploy us to provide patient and safe security. Finally, just in time for the summer vacation period, we're excited to welcome several new theme parks, including Dollywood, the biggest ticketed tourist attraction in Tennessee, and Kennywood, a century-old theme park in Pennsylvania. Combined, these two theme parks welcome more than 5 million visitors annually. I want to shift and share some key trends we're seeing in our business. First, we continue to see strong momentum with our channel partners, which is enabling us to extend our vertical and geographic reach. Over 60% of our Q1 TCV came through our channel partners, which is up significantly from the back half of 2021. That involvement is most pronounced in healthcare, education, and professional sports. We're seeing broad activity across three dozen authorized channel partners and several strategic global partners in Motorola Solutions, Johnson Controls, and Stanley. The number of qualified partner-involved opportunities has never, ever been higher. We're also seeing strong growth in the number of Evolve Express certified professionals among our partners, which is a result of the work we've done to activate and enable partners over the last several quarters. These are partner professionals who will be able to sell, install, and support Express in the field. Second, on the supply chain front, we continue to feel the impact of higher hardware costs connected to COVID-related challenges over the last 12 to 18 months. We're addressing these challenges by pre-buying hard to find parts, which helps us to ensure product availability while helping protect against the risk of rising inflation. We feel confident about both our inventory levels and our product availability. Third, on the competitive front, we're continuing to see more attention being paid to the space, which is not surprising given the size of the market opportunity and the compelling economics. We still see up to 90% of our opportunities going uncontested. When we do bump into others in the marketplace, it's generally a provider of legacy walk-through metal detectors, and we tend to do very well with those head-to-head competitions as that technology has been around for decades. We continue to stay relentlessly focused on improving the coverage, productivity, and predictability of our sales force. Finally, we're seeing increasing acknowledgement of our detection and performance capabilities by universal testing bodies. On March 31st, 2020, the end of the quarter, 2022, we announced that we were awarded the U.S. Department of Homeland Security Safety Act designation for Evolve Express platform. Safety Act designation provides significant federal liability limitations for those using or deploying Evolve Express to protect their visitors. The Safety Act is recognized as an important standard by which security technologies are judged and our designation status validates the Express platform as a high-throughput, touchless weapons detection screening system worthy of the very high DHS performance standard. DHS's application process involves significant review of the technology, its use in the field, results from field testing, and customer feedback and testimonials on its performance. Several of our customers submitted their performance evaluation and testing in support of our application. We were also recently recognized by the National Center for Spectator Sports Safety and Security, or NCS4, which tested the effectiveness of the Evolve Express platform. The results of that testing were very positive, as we earned a score of 2.84 on a scale of 0 to 3, the highest among the high-throughput touchless weapons detection screening systems. The DHS Safety Act designation and positive NCS4 testing results are important acknowledgments for the company, our customers, and our partners, and provide further validation of our technological and market lead. So that's an update on our progress in Q1 and the trends we're seeing in the business. We're off to a solid start here in 2022 and we believe we're well positioned to meet our full year top line growth plans. We remain well capitalized and we remain confident that we have the appropriate resources to get to cash break even without any additional capital raising efforts. None of this would be possible without the trust of our customers put in Evolve every day to keep their venues and people in them safe. In all my years in the security business, much of that in cybersecurity, I've never seen such a deep, trusted relationship develop between a company and its customers. That mutual devotion to keeping students, employees, visitors, and fans safe is something we cherish here at Evolve. With that, let me turn things over to Mario, who will take you through our financial results and our outlook for 2022. Mario?
spk04: Thanks, Peter. Good afternoon, everyone. I'm going to review our first quarter results in more detail and then share some thoughts on how we're thinking about the rest of the year. We ended the first quarter with 910 active subscriptions, up 29% sequentially and 227% year over year. We had a very strong start of the year, adding 207 subscriptions in the first quarter of 2022, compared to 136 in the fourth quarter of 2021 and 64 in the first quarter of last year. Some of these were part of the installation backlog we discussed at the end of 2021. As Peter mentioned, revenue in the first quarter was $8.7 million, up 27 percent sequentially and 118 percent year-over-year. We ended the first quarter with annual recurring revenue, or ARR, of $16.6 million, reflecting growth of 29 percent sequentially and 207 percent year-over-year. As a reminder, we define ARR as the period-ending monthly subscription revenue and the recurring service revenue related to purchase subscriptions normalized to a one year period. The school district transaction that Peter described led to a strong contribution from our purchase subscription pricing model in the first quarter. In addition to higher mix of purchase subscription sales, we also had a greater percentage of equipment sales in smaller, less expensive one lane systems, driving down average revenue per unit. The school district transaction comprised primarily of single-lane configurations. Remaining performance obligation, excuse me, or RPO, was $50.5 million at the end of the first quarter, up 26 percent sequentially and 186 percent year over year. As a reminder, RPO reflects the difference between contract value and revenue that has already been recognized for units deployed as of the end of the quarter. In addition to RPO, we ended the quarter with another $13.2 million of contracted revenue associated with units that had not yet been installed as of March 31st, 2022. So, in total, we had about $63.8 million of RPO plus contracted revenue in backlog at the end of the first quarter. This represented growth of approximately 24% sequentially. Gross margin was 19% in the first quarter compared to 26% in the first quarter of last year. The lower margin reflects the higher percentage of purchase subscription sales where equipment revenue and costs are recognized up front. This impact was more pronounced because of the higher portion of one-lane systems sold as part of those purchase subscriptions. Excluding depreciation and amortization and scrap costs, Our gross margin was 31% in the first quarter compared to 37% in the year-ago period. Our product gross margin was negative 7% in the first quarter and, as we mentioned, was impacted by an unusually high level of competitively priced single-link configurations in the quarter, including the Charlotte Mecklenburg School District transaction. Our product gross margin was also impacted by $175,000 of one-time scrap charges. We're very happy to report that we continue to grow our subscription gross margin, which reached 65% in the first quarter of 2022, compared to 60% in the fourth quarter of 2021, and compared to 54% in the first quarter of last year. This improvement reflects the benefits of scaling our operations, just as important Our subscription cash gross margin, excluding stock-based compensation and depreciation and amortization, was 91% in the first quarter compared to 86% in the first quarter of last year. Finally, services gross margin, which is a much smaller component of our gross profit, was 11% compared to 36% in the first quarter of last year. This number is subject to fluctuations in our service costs on any given quarter, given its size. Total operating expenses were $27.5 million in the first quarter compared to $22.3 million in the fourth quarter of 2021. There were four specific drivers to this $5.2 million sequential increase in OPEX, a large portion of which were one-time or out-of-period expenses. The biggest reason for the increase in expense was due to due to 2.5 million in non-recurring expenses, including 1 million in stock-based out-of-period expense, severance in connection with the departure of a senior executive, and other smaller items. We also had an increase of 2.1 million in payroll-related expenses, primarily reflecting the growth in headcount in the fourth quarter of 2021 and first quarter of 2022, but also the impact of first quarter payroll taxes. We exited the first quarter with 196 employees compared to 176 at the end of 2021, so a net add of 20 employees. We expect headcount growth to slow down for the remainder of this year unless sales volumes continue to accelerate. Another portion of the increase was due to a one-time benefit we realized in the fourth quarter of 2021, for a catch-up benefit related to the capitalization of prior period's R&D expenses. This effectively lowered R&D expenses in the fourth quarter and, in the absence of that benefit, the absence of that benefit totaled $800,000. Finally, we saw a $500,000 increase in marketing expenses reflecting the timing of certain trade shows which helped to drive a significant increase in unit sales in the quarter. Loss from operations was $25.9 million in the first quarter, up 183% year over year. Adjusted loss from operations, which excludes stock-based compensation and the one-time items, was $19.2 million in the first quarter, compared to $8.1 million in the first quarter of last year. Adjusted EBITDA was negative 18.2 million in the first quarter, compared to a negative 7.6 million in the fourth quarter of last year. Now let's discuss the balance sheet and our cash burn, which we're very focused on. We ended the quarter with approximately 271 million in cash and cash equivalents, down about 37 million from the fourth quarter of 2021. Approximately 20 million of the Q1 cash burn is due to cash operating loss. We expect our quarterly cash losses to decrease throughout the year as we grow deployments and limit expenses, though any given quarter may be worse due to the timing of expenses. Now let's review the remaining $17 million of cash burned in the first quarter, which is comprised primarily of working capital items. Seven of the $17 million was cash consumed by inventory in the quarter, an amount comparable to the inventory amount consumed in Q4. This enabled us to meet the growing demand for Evolve Express. $6 million was for a prepayment deposit to our contract manufacturer in the quarter to fund an additional purchase order for inventory. We are likely to make additional cash deposits with our contract manufacturer to ensure access to raw material and mitigate risk of inflation. $1.3 million was due to the timing of annual bonuses paid in connection with our employee compensation plan. Obviously, incentive compensation bonuses will not be a cash outflow for the remainder of 2022. There were a few other timing-related working capital items that consumed about $2 million in cash in the quarter, including the activation of our new NetSuite ERP on April 1st, which drove us to prepay some expenses prior to quarter end, as well as the general timing of installations, which were slanted towards the back half of the quarter and had an impact on billings and subsequent collections. So again, I want to emphasize that about $17 million of the cash usage in the quarter was working capital items, some of which are due to timing. In addition, we expect the $20 million in cash operating losses to decrease as we ramp up subscriptions throughout the year. We are encouraged by our start to the year and are continuing to drive growth higher while staying very vigilant on expenses and cash flow. Based on what we know today, our outlook for the year is consistent with the outlook we issued just eight weeks ago. Specifically, we continue to expect full year revenue to be between $29 to $31 million, which would reflect a growth of about 25% year over year. We were happy with our strong first quarter performance and continue to feel very confident about the remainder of the year. However, we have seen that deployments can be impacted from quarter to quarter by large deals and clients' willingness to deploy on a timely basis. As such, we are maintaining our current revenue guidance. We continue to expect adjusted EBITDA to range between negative 65 and 67 million in 2022. This reflects our expectation for sequential revenue growth together with slower expense growth, which should improve profitability over the last three quarters. We continue to expect to end 2022 with approximately $220 to $230 million in cash, which reflects increased inventory buildup and deposits for materials to support our growth plans in 2023. We may deploy more of our cash to pay for raw materials and mitigate pricing pressures, which we feel would have a significant short-term return given the inflationary environment. With that, I'll turn things back over to Brian.
spk07: Thank you, Mario. Operator, at this time, we'd like to open the call up for Q&A. We're going to ask participants to limit themselves to one question and one follow-up. Sean, if we could open the call, that'd be great.
spk09: Yes, thank you. Ladies and gentlemen, if you do have a question for today's conference, please press 1, then 0 on your touchtone phone. You'll hear acknowledgement that you've been placed You may remove yourself from queue at any time by pressing 1 and 0 again. And ladies and gentlemen, if you do have a question at this time, please press 1 and 0 on your touch phone. Our first question is going to come from the line of Shaul Ayal from Cullen. Please go ahead.
spk06: Hi, this is Hugh on for Shaul. Guys, first of all, congratulations on a solid quarter. And second, you know, it's always good to hear when you have successes like stopping that gun at the school? In any event, thanks for taking the question. So, the first thing I want to ask is, in terms of product versus subscription, what impact did that balance this quarter? And I remember, you know, last quarter we talked about some customers preferring to, for budgetary reasons or other reasons, preferring to buy machines instead of entering into subscriptions. And then the second question is, are you getting any feedback from customers right now about, you know, sort of add-on capabilities that you may offer in the future, ticketing and et cetera? Thanks.
spk04: Yeah, on the impact, you know, On the purchase subscription side, we recognize the entire product revenue up front. And so as a result, because we're not collecting that over time, the product revenue increases significantly if we're selling a lot more purchase subscriptions compared to the prior quarter. And that's exactly what happened. If you go back to the third quarter, we had a similar phenomenon. We had a higher mix of purchase subscriptions and our revenue was actually impacted positively because of that. And in the fourth quarter, that came back to a more normal mix level. So when you track the product revenue line, that mix component can make a big impact in any given quarter. I apologize if I didn't answer your question. Cut out a little bit. So let me know if you need to follow up on that.
spk06: Yeah, sorry about that. Let me try to get closer here. The real question was about the customers and their preferences for machines versus subscriptions. And I recall some of the sports teams had this sort of preference for buying the express machine because of budgetary reasons instead of entering into a subscription. Are you seeing any change in that trend, just sort of looking for what to expect?
spk05: Yeah, I can add on to what Mario has already said. So first of all, Hugh, thank you for your comment about that school. I'm going to come back to that. Specifically as it relates to purchase subscription, remember, Hugh, all of our customers get a subscription from us, every one of them. Some of them choose to buy the platform and get a subscription, and some choose just to get a full subscription. We had in the plan for this year for 75% of our customers to be full subscription and 25% to buy the hardware and then get a subscription. In Q1, as Mario mentioned, more of our customers chose purchase subscription, primarily because we were replacing metal detectors. They were used to using CapEx to buy it. And in this case, with Charlotte Mecklenburg, They got grant money and wanted to spend all the money up front and pay us up front, and they used their CapEx budget to do it. So that swayed the quarter a bit, but we believe long term, meaning the rest of the year, that will normalize back to the 75-25. And as I said, everyone will get a subscription from us. Does that make sense? Yes.
spk06: Yeah, I get that. I was just kind of thinking if you're going to see that sort of phenomenon a lot going forward where people because of budgetary or organizations because of budgetary reasons like the school or the sports team say, hey, we're going to go ahead and buy the machine and pay and enter into a lower cost subscription program. versus seeing customers going into a larger cost subscription without buying the machine. But I get what you're saying. The second question was just about any feedback on potential add-ons, you know, like ticketing and other things we talked about in the past, taking temperature, et cetera.
spk05: Yep. So absolutely. So we have a big R&D development effort going on this year, not only to continue to increase the efficacy of our software, make our systems more accurate and effective, but also to do lots of integration. So we've announced integrations with most of the major leaders in video management systems. We're excited about that. Mass notification systems. So integrating into the existing ecosystem and infrastructure of our customers already there is really, really important. Because we're a digital platform, we can do that No other companies can so that's a competitive advantage for us that we like to exploit above and beyond that because it's easy and we're a software Platform we can add new applications right now. We're looking at either integrating or adding things like biometrics License plate reading lots of other capabilities to create that experience that you've heard us talk about before and the safe, frictionless, informed experience from the approach when people come to the parking lot or enter outside of the venue through the threshold where we are in the entryway and then operating freely inside the venue. So, yes, we're working on both developing ourselves and partnering for adding new applications to the platform. The first one will probably be in biometrics.
spk06: Very helpful. Thank you so much.
spk09: Next, we're going to go to the line of Mike Lattimore from North End Capital Markets. Please go ahead.
spk01: Great. Thanks. Yeah. Congrats on the strong results here. Real strong bookings there. I guess on the, I think you said 60% of bookings came from partners. I mean, I believe that's well ahead of your expectations. Maybe can you elaborate a little bit on that? why the strength through partners, and then does that give you some flexibility to maybe spend a little bit less on internal sales account?
spk05: Yep. So our plan for this year was to end the year about 50% direct and 50% through channel partners. You may remember last year was more like 70-30, 70 direct and 30% through channel partners. But we made a big investment last year in hiring world-class channel people and to enable our channel partners. And that investment has started to pay off in earnest even faster than we expected in Q1. So we were really thrilled to see our pipeline growing dramatically. And those deals translate into some of the TCV we talked about. And as we look out at the pipeline for the rest of the year, that trend continues. So the investment we were making there is starting to pay off early. And it does allow us to not make as many direct investments. We have enough direct people today on our sales force to make our guidance number for the year. So we have people in place to do that. But with this acceleration from the channel, we're excited about it, and we look forward to what the next couple of quarters are going to bring with the channel.
spk01: Great. And then just on gross margin, can you give a little maybe just guidance there? Should subscription gross margin keep sort of trending up here? And then on product gross margin, is that just going to be naturally kind of a little variable on a quarterly basis?
spk04: Yeah, the product gross margin will be quite variable. And this quarter, for example, because we saw a lot of single lane systems, the margin was probably a little lower than it had been. So that's tough. I would expect that to revert back to where our averages were. On the subscription, our expectations for that to continue to climb, I think originally we had said upper 70s, low 80s of subscription margin. I think ultimately it will get there, but obviously we're very happy with the progression. I don't think we'll continue to have the same leaps quarter of a quarter, but we do believe it will continue to improve as we scale.
spk09: Okay.
spk01: Okay. Thanks a lot.
spk09: Thanks, Mike. Next, we'll go to the line of Brad Ribba from Steffel. Please go ahead.
spk08: Excuse me. Great. Thanks very much. I think during the prepared remarks, you talked about the gross margin of the Charlotte School District being negative on that sale. Number one, was that correct? And number two, what was the thought process, if that is correct, in doing that? Thanks.
spk04: We didn't say it was negative. We said it was the majority of the units sold in that contract were single lane, which typically have a lower price point. They have a lower cost as well. We didn't disclose how profitable or unprofitable it was, Brad, but we did talk about that from a per unit revenue, it was typically a lower deal than we've seen from others.
spk08: Okay. And then maybe just from a high level, Strategically, you mentioned competition some on this, and I understand there are aspects of the market that are fairly competitive, but you're so early on in the process and you're somewhat supply constrained given the supply chain issues. Why bother with those opportunities? Why not focus time and effort on the most profitable business that you can get in any given period?
spk05: Sure. So look, if you remember, this is a $20 billion TAM. $2 billion is regulated, and that's where the existing antiquated metal detector technology is, specifically professional sports. So we have a sports team dedicated to that. The rest of the organization is focused on the $18 billion greenfield. So think about schools and hospitals, performing arts venues, distribution warehouses, Torah sites, houses of worship. That's exactly where our team's going. And I think some of the acceleration with the channel is our channel partners, many of them, have deep, long-standing relationships with all those places, and they're able to get us into those companies very, very quickly. So that's exactly where we're focusing. Thank you.
spk04: And financially, Brad, just keep in mind the contracts are very, very favorable. You know, in a purchase subscription, sometimes it looks like the margins on the equipment are quite tight or negative. But that's not a reason not to put them on because that subscription revenue stream is highly, highly profitable as we're showing. So it is, you know, obviously I get why you're asking and I understand the point, but the large contracts, even if we don't make a ton of money on the equipment, we're making a lot of great margin on the subscription. Even more importantly, we're making almost 100% margin on cash margins. So that's why we're very eager to sign those deals up.
spk08: Makes a lot of sense.
spk04: Thanks very much.
spk08: Thanks, Brent.
spk09: Next, we're going to go to the line of Brian Ruttenberg from Imperial Capital. Please go ahead.
spk03: Yes, thank you very much. First question is visibility on cash break even. You already went over kind of why the cash was burned so high in the period, but can you talk a little bit about timing the cash break even? Is that a 2023 event?
spk04: Yeah, we talked about that at the end of the year. I'm not going to go into it other than we really feel great about where the business is heading and we're not going to change kind of the break-even timing, which we talked about, and I think we said 2025 or maybe 2024. So, Brian, I think from our standpoint, we're really kind of focusing on 2022 right now. We get why you guys are asking, but as Peter mentioned, we're very comfortable we'll get to we'll get to break even without needing any additional financing. We have lots of levers to pull, including third-party financing of equipment, which we are just starting to look into. So whether that's 25, 24, we don't know. We're committed to getting there quickly, as quickly as possible. And we're also committed to, if we can have an opportunity to deploy cash smartly in the near term to accelerate that, or to get a great return, we'll do that. But the long-term prospect, I think, is unchanged from what we talked about at the end of the year.
spk03: Great. And then as a follow-up real quick is, has there been any change to sales incentives in this first quarter? And can you talk a little bit about that? Has there been a push to incentivize the sales force more towards subscription versus product? you know, how do they get paid and where is the incentive structure?
spk05: Yeah, no, there was no extra incentive in Q1. Remember, every one of our sales is a subscription and our salespeople do what's best for the customer. So we don't try to steer them in any direction. And we had a record march in every dimension, right? I mentioned we got off to a slow start with the Omnicrom hangover, and it's seasonally Q1 can be quiet. But, boy, everything changed in March, and we broke every record for a month in the company, and it wasn't anything we did with the sales guys. They were bringing in the deals that they had been working on for a while, and everyone started opening up again, right? And our customers were willing to accept the systems that they ordered and and we obviously took advantage of that. So we feel really good about how we finished the quarter and feel really good about the momentum we have starting this quarter because it's continued, and the outlook looks quite good.
spk04: But I will say, Brian, that compared to last year, we've been much more aggressive in pushing sales quotas higher because we're seeing the success of sales.
spk05: Well, we doubled quotas for our sales guys, so they have to sell twice as much this year as they did last year. They're subscription neutral because everything we sell is a subscription, and they're having great success out there. And as you know, because we've talked to you before about our channel strategy, they're also channel neutral. So whether they sell it direct or they sell it through the channel, we can get tremendous operational leverage from all the channel people they have in their territory, and that force multiplier is translating into our business.
spk02: Great.
spk05: Thank you.
spk09: Thank you for your questions. I'd like to turn it back over to Peter George. Please go ahead.
spk05: Peter George Great. Thank you. So I just wanted to finish off with hopefully the key messages that everybody got from the call today. First is we got off to a really strong start in 2022. We're really happy with our results in the quarter and really confident in what the rest of the year looks like. Some of those highlights, getting 40 new customers, in the quarter was huge, not just the number, but also some of the key customers that we got. Getting 200 systems deployed in a quarter that was very back-end loaded was a challenge for the company, but we met the challenge. I mentioned that Mecklenburg deployment, it was a record for us, right? The deal was a $4.2 million deal, it was 52 systems, and we got those systems deployed in three weeks and got those kids safe going to school, 150,000 of them in the district. They're really, really happy about that. I mentioned the data that we're collecting, 250 million scans. Nobody in the industry has that kind of data, and it's making our technology and efficacy better every day because the system gets smarter every day. And then finally, that partner momentum is translating into the business in an accelerated rate, and we expect that to continue, so we're excited about it. So we look forward to seeing you in July when we have the next earnings call. We thank you all for attending. Thank you very much, everyone.
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