Blackline Safety Corp.

Thank you for standing by. This is the conference operator. Welcome to the Black Line Safety Corp fourth quarter 2022 results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Scott Boston, Vice President of Finance. Please go ahead.

Welcome, and thank you for joining us. I'd like to remind everyone that this call is being recorded today, Tuesday, January 24, 2023. With me today is Cody Slater, CEO and Chair of Blackline Safety Corp., as well as our CFO, Shane Brennan. Before turning the call over to Cody, I would like to note that some of the information discussed in this call is based on information as of today and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, please review the forward-looking statements disclosure in the earnings news release as well as in the company's CDAR filings. During this call, there will be a discussion of IFRS results, non-GAAP financial measures, non-GAAP ratios, and supplementary financial measures. Reconciliation between IFRS and non-GAAP financial measures is available on the company's earnings news release and MD&A, both of which can be found on our website, blacklinesafety.com, and on CDAR. All dollar amounts are reported in Canadian dollars unless otherwise noted. Participants are advised that this webcast is live and is also being recorded for playback purposes. An archive of this webcast will be made available on the investor section of our website. Neither this call nor the webcast archive may be re-recorded or otherwise reproduced or distributed without prior written permission from Blackline Safety Corp. With that, I will now hand the call over to Mr. Slater.

Thank you, Scott. Good morning, everyone, and welcome to Blackline Safety's fourth quarter 2022 conference call. Today we'll be discussing our fiscal results for the fourth quarter and fiscal year ended October 31st, 2022, which were issued before market opening this morning. To set the agenda for today's call, I will start by providing some high level remarks. Shane will then discuss key financial highlights of the quarter in greater detail, and I'll conclude by providing our outlook and some closing comments before we take questions. Our fourth quarter represented a strong finish to our fiscal 2022. as we not only grew revenue on a year-over-year basis for the 23rd consecutive quarter, resulting in record annual revenue of nearly $73 million, representing 34% annual growth. In Q4, we also executed on a meaningful cost reduction plan that we laid out to investors during our second quarter earnings call. Continued revenue growth, coupled with the tremendous progress we've made in reducing our cost structure is building momentum towards positive adjusted EBITDA generation for the company. Speaking to our continued revenue growth, total revenue for the quarter was up 14% from the prior year to $22 million, which included outsized growth of 33% from our higher margin services segment. Our overall growth was driven by strong regional performance in multiple key markets. Our rest of the world revenue, which includes regions outside of Canada, United States and Europe, to 105%, driven by our two largest deployments to date for the region as we continue to earn stronger returns on the prior investments we have made in this region. In Canada, our sales team continued to execute across a variety of industries, resulting in a 79% revenue increase. In Europe, we began to see the benefits of the leadership and strategic alignment changes we undertook last year as the region returned to growth. generating a 13% increase over the prior year period and a 57% increase over the prior quarter. We are pleased with this performance and the outlook in Europe as we expect the region to be a meaningful contributor towards Blackline's future revenue growth. Now shifting to our business segments, product revenue of $11.1 million was largely unchanged compared to the prior year quarter, but was up 25% sequentially. It should be noted that prior year Q4 hardware sales benefited from the company's single largest order ever shipping during the quarter. Product gross margin came in at 26%, our best performance of fiscal 2022, as our operations team successfully mitigated global supply chain challenges and inflationary pressures. It is worth highlighting the product margins in the quarter saw negligible benefit from the 15% pricing increase we recently implemented as we fulfilled orders in our pipeline in place before the pricing change. This pricing increase is expected to generate a significant increase in margins through fiscal 2023. When we combine the pricing increase with forthcoming integration of product design improvements from learnings in the G6 development, we believe we are building towards 40% product margins by the end of fiscal 2023. On the service side, we continue to generate strong growth with a 33% increase to 10.9 million in Q4. This exceeded the 30% growth we recorded last quarter, which at the time was the strongest service growth we had achieved over the past two years. We also generated 35% year-over-year growth in ARR to 36.6 million. This increase was driven by our software services, which increased 35% to $9.2 million as we continue to activate new devices, which is the inherent benefit of our hardware-enabled SaaS business model that drives high-margin recurring revenue as we take market share and deploy new devices. Our rental business also continued to grow at a high rate, resulting in 70% growth to $1.1 million. our first quarter over $1 million for the rental business, as we continue to generate strong value on our past investment in the rental fleet. Overall service margins remained healthy, coming in at 70%. Similar to our hardware business, we implemented a 15% pricing increase late last year that, along with greater adoption of our higher-value service offerings across our install base, puts us in position to push our service margins towards 75% by the end of fiscal 2023. While we are confident in our revenue and margin outlook, I want to highlight the impact of the cost reductions we achieved in the second half of fiscal 2022 as we focus on profitability. We recorded total operating expenses for Q4 of 20.3 million, representing a more than $4 million sequential decrease and meeting our guidance to have Q4 operating expenses at or below our Q2 levels of 21.5 million. This success is the result of better leveraging our past investments in our sales and marketing teams and rationalizing our product development costs as we move past our most significant product launch in recent history with the G6. This step change reduction in our operating costs along with our continued success in the market puts us in strong position to deliver on our goal of achieving profitability. I will now turn the call over to our CFO, Shane Grennan, to discuss our fiscal fourth quarter results and financial position in more detail.

Thank you, Cody, and good morning all. As Cody mentioned, we achieved another quarter of year-over-year growth of 14%, generating revenue of $22 million. This includes $11.1 million in product revenue, which remained largely unchanged from the prior year period, as Q4 of last year benefited from the previously mentioned largest single order in our history. I will point out, though, that our Q4 product revenue grew 25% sequentially. Product growth margin percentage in the fourth quarter decreased to 26% from 30% compared to the prior year period. That represented our highest product margin in fiscal 2022 as we saw some relief in supply chain constraints and inflationary pressures on the costs of certain components. As Cody mentioned, it is worth reiterating, product margin performance in Q4 received an actual benefit from the 15% pricing increase we recently implemented, and we therefore expect fiscal 2023 to show meaningful product margin expansion. Overall service revenue during the quarter was 10.9 million, a 33% increase from the prior year quarter. The 33% year-over-year increase exceeded last quarter's 30% year-over-year growth, which was already the strongest quarterly service growth achieved over the past two fiscal years. Software Services was a strong contributor to the growth, up 35% year-over-year, which drove ARR growth of 35% to $36.6 million. Our rental business also continues to generate robust growth, with revenue increasing 70% from the prior year to $1.1 million, marking the first quarter with over $1 million in revenue. Newly activated devices contributed to year-over-year growth of $2.4 million in the quarter, and net service increases within our existing customer base, contributing $0.7 million of the growth. Our service growth margin percentage remained strong at 70%. slightly above last year's 69%, as service revenue continued to grow, absorbing more fixed cost of sales. With the pricing increase recently implemented, we expect a smooth margin increase over time as we add new customers and renew existing customers under the new pricing model. Our total gross margin was up 17% to 10.5 million, outperforming our revenue growth as our gross margin percentage increased from 47% to 48%, and is a dynamic we expect to continue throughout 2023. The growth in total gross margin is largely attributable to a shift in our sales mix, with our higher margin service revenue comprising 49% of total revenue in the fourth quarter, an increase of 7 percentage points from the prior year quarter. In terms of our geographic growth mix, we are pleased with our performance. Our rest of world region, that includes the Middle East, grew 105% from the prior year as we continue to reap the benefits of prior investments made in the region and capture strong demand. Additionally, Canada continued its strong performance, resulting in a 79% increase from the prior year as market demand remains healthy. We also saw Europe return to growth, generating 13% higher revenue from the prior year as we successfully executed on the leadership transition in the region. We have strong confidence going forward that Europe will be a long-term growth driver for our business. The U.S. market declined 17% in Q4, as Q4 of fiscal 2021 benefited from a significant sales order from a customer. We remain confident that the U.S. region will return to growth in fiscal 2023, given our robust pipeline of opportunities. Shifting now to operating expenses, which came in at $20.3 million compared to $18.6 million in the prior year quarter. Product research and development costs increased 19% from the prior year quarter to $5.6 million. Salaries and wage expense increased $1.6 million as the company retained and attracted resources with the required skills for research and development activities in a competitive market. Additionally, the acquisition of Swift Labs in Q2 of fiscal 2022 contributed 0.4 million to the increase. This was partly offset by a decrease in contractors and consulting of 0.7 million, as the company made efforts to significantly reduce its use of external resources with the completion of the G6 launch and onboarding of Swift Labs employees who had previously been consultants. Sales and marketing expenses decreased 8% from the prior year quarter to $9 million as we executed on multiple cost reductions. Debt expense decreased by $0.8 million due to improvements in the overall aging of the company's receivables and fewer write-offs. Advertising expenses decreased $0.4 million and recruiting costs decreased by $0.2 million. These decreases were partly offset by increases to salaries and wage expenses of 0.2 million due to adjustments in salaries and new hires, including our customer care, demand generation, and rental teams to fuel our commercial engine. Lifting of travel restrictions also allowed us to more effectively present to existing and potential customers, resulting in higher sales and business development travel costs of 0.4 million. General and administrative expenses increased 35% from the prior year quarter to $5.7 million, due to a number of structural changes across the company in the year, as well as its overall growth. Salaries and wage expense increased $0.6 million, consulting expenses increased $0.2 million, and software maintenance and subscription costs increased $0.2 million, as we added more licenses and functionalities to our platforms to support additional team members joining Blackline. It is worthwhile to note the meaningful cost reductions we have undertaken during the second half of fiscal 2022, as we achieved our goal of having Q4 operating expenses to be at or below our Q2 levels of $21.5 million. In fact, Q4 operating expenses were more than $4 million lower sequentially, as the team continues to make tremendous progress scrutinizing our operating cost base as we look to better leverage our past investments in reinforcing Blacktown's position as a global leader in connected safety solutions. The largest contributors towards this reduction include a $1.9 million sequential decrease in product research and development costs, attributable to lower salaries, consulting, and recruitment costs. Also, sales and marketing expenses were $0.6 million lower sequentially due to lower salaries, and general and administrative expenses were $0.5 million lower sequentially due to a reduction in salaries and software maintenance costs. Now moving to capital expenditures, which totaled $3.2 million for the quarter, primarily for revenue-generating gas sensor cartridges, property and equipment additions of rental equipment, and surface mount technology. Inventory totaled 18.7 million at the quarter end compared to 18.6 million at the end of the third quarter and 12.7 million at the end of our prior fiscal year. Recall that we have built up our inventory during fiscal 2022 to mitigate supply chain challenges and build towards the launch of the G6. With past supply chain constraints improving, the change in our delivery schedule away from next day fulfillment and the launch of the G6 We expect our inventory needs to moderate, allowing us to harvest some cash from our inventory in the coming quarters. Blackline provides the option for our customers to purchase outright our devices or to lease through our G7 lease program, with this customer decision affecting the timing of our cash inflows associated with that sale. We've expanded the number of customers opting for finance leases. with a total of $35.9 million in future contracted cash flows at October 31, 2022, which is up from $16.3 million at the end of the prior year and up from $31.2 million at July 31, 2022. These finance leases positively impact our immediate product revenues and service retention over time, but negatively impact the company's cash flows in the near term, as the associated cash inflow from leasing can take one and a half to two years to catch up to a purchase. Another topic on our lease portfolio worth mentioning is that we are evaluating several potential financial structures that would allow us to access the value embedded in our lease portfolio to enhance our liquidity position. Since these are contractual payments with a broad and diverse customer base, many of which are investment-grade quality, We believe our lease portfolio could present an attractive option to increase our liquidity and lower our overall cost of capital. Executing on such an option would provide immediately available non-dilutive liquidity with the possibility for growth in line with the lease portfolio. As we work towards this goal, we drew 8.6 million on our new senior secured operating facility representing the value of hardware revenue from the last three quarters of new finance leases. This helps to normalize the working capital position of the company's balance sheet. Lastly, on our balance sheet, we ended the quarter with a working capital position of 40.3 million, including cash and short-term investments of 31.1 million. And we had 6.4 million of availability remaining on our new senior secured operating facility. Recall that during the quarter, we closed a bought deal and private placement equity financing that raised nearly 25 million in gross proceeds. and close the credit facility with ATB Financial for a new $15 million secure operating facility. We believe these financial resources, coupled with continued revenue growth and the cost reductions we have achieved, put us in a solid position to fund the company through our transition to generating sustained positive adjusted EBITDA. As we execute towards this goal, I would like to note our updated definition of adjusted EBITDA in today's filings. that no longer adds back product research development costs and normalizing for foreign exchange gains and losses. This makes us more consistent with peers and is a better measure of our path to profitability. Please reference the non-GAAP measures section of our MD&A and earnings release which details this change and provides a reconciliation of adjusted EBITDA to net income for the quarter and year ended October 31, 2022 and the prior year comparative periods. I will hand it back to Cody to discuss our outlook and provide closing remarks.

Cody? Thank you, Shane. The next topic I want to cover is the G6, which was launched at the end of Q4. We believe the product market fit is strong and the opportunity to disrupt the $220 million annual zero-maintenance gas detection market is significant. We have a strong track record of deploying disruptive solutions in the gas detection market with our connected safety solutions that deliver significant value for our customers. We remain convinced of our solution for this new market, which overlaps with many of our existing customers. We are building the commercial pipeline and expect to see an acceleration of shipments later in fiscal 2023. We look forward to providing more comprehensive updates on the G6's penetration into the zero maintenance gas detection market throughout the year. As we embark into our fiscal 2023, we believe we are in an exceptionally strong position to execute on a plan of continued robust growth, healthy margin expansion, and cost containment, which should culminate in the company exiting fiscal 2023 in a position of generating sustained positive adjusted EBITDA. This is a significant milestone for Blackline that we are committed to achieving in a timely manner. Importantly, we believe we are fully funded to accomplish this milestone based on our existing liquidity options. To be clear, our move to begin generating positive adjusted EBITDA is not expected to be a one-time event as our business model is supportive of sustainable profitability with the path we are on. We have a long and demonstrated track record of revenue growth, and as Shane discussed, we have made meaningful progress towards executing our cost reductions. This is a powerful combination that will yield strong operating leverage in fiscal 2023 and beyond as we demonstrate the strength of our hardware-enabled SaaS business model and continue our dominance in the connected worker market. We look forward to successfully executing against our strategy throughout the year, enabling the company to exit fiscal 2023, generating positive adjusted EBITDA. Thank you to everyone who tuned in for our call today and your continued support for Blackline Safety. I'd like to thank our shareholders for their continued belief in our company, and I would like to thank all our employees for their dedication and hard work. With that being said, I'll turn the call over to the operator and open it up for questions.

Thank you. We will now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. The first question comes from Martin Toner with ATB Capital Markets. Please go ahead.

Good morning. Thanks for taking my question, and congrats on a good quarter. I wanted to ask you about the G6. Do you expect the launch to be sort of a trickle, Or are you able to sort of like built up pent up demand in front of launching it, you know, recently in this current quarter?

Yeah, good question, Martin. Really, what you're going to see with the six is the market demand. What we're seeing is the market demand is there right now. What we're in the process of is. You're building that pipeline. You need the product in people's hands to be able to do that. So you'll see the soft beginning with a really strong finish through the last half of the fiscal year here.

Fantastic. One more from me. The G7, the installed base, there's a big chunk of it that's turning five years old this year. How much of a tailwind do you expect that to be this year in new product revenues?

You know, we're looking at something starting to be in the range of 20% of our hardware revenue looking forward coming from renewals. We've started to see the first of those in the last couple of quarters from some of the very early XO or G7 orders, 100% retention on those customers. And the one thing we're seeing is that they tend to be renewing their hardware but also upping their service levels at the same point in time. So it's going to be strong. It will be a strong impact to our hardware. But I think there will also be a sequential impact to the service. Even though there's still customers currently paying service, the majority of them we're seeing are renewing for higher levels of service that maybe weren't available at the point in time when they purchased the product.

That's great. Thanks for taking my questions. I'll pass the line. Thank you.

The next question comes from Amir Ezzat with Echelon Partners. Please go ahead.

Good morning. Thanks for taking my questions. Cody, Shane, just wondering how discussions with customers are evolving since we lost POKE with an ever weaker macro environment?

The impacts in the macro environment certainly are there. In most of the industries we're in, the heavier industries, we're not seeing a major impact. We have seen, which might be part of that, a shift a bit towards our leasing program from some of the customers where capex becomes maybe a bigger concern. So we've seen an increase over the last few quarters sequentially in the percentage of product going out as a lease. But in general, we're still seeing strong pipeline growth to support the kinds of numbers we want to see this year, I should say.

Okay, that's good to hear. On the product margin, it's nice to see the bounce back to 26%. Cody, I think you spoke to 30% targets by the end of 2023. I just wonder, would the price increases not fully reflected in the quarter, is there room for improvement above and beyond that 30% target?

Yeah, I mean, actually, our target here is to hit 40% at the year end. So you'll see that. Okay, did I miss here? It's 4-0? Yeah, it's 4.0, actually. So, either I wasn't speaking clearly or, yeah, you've answered. We're targeting 4.0 because you're right, the price increase makes a big impact. But also, so does some of the, you know, we point to the fact that the G6 is leveraging, you know, much newer technology that can be, you know, frankly, smaller, cheaper. And moving some of that into the seven series as well, too, will improve the product performance but also improve our margins. So trending everything towards that 40% at the end of the year.

Okay, great. I did think the 30% was conservative. On the cost reduction plan, you are well below the $21.5 million targets. I'm just wondering, how do I look into 2023? Is that $20 million? and change level sustainable, or are there incremental investments you're looking to make in 2023?

You know, Q4 is always, in certain aspects, Q4 is always our highest expenditure quarter. So we have things like the National Safety Council show our single biggest marketing spend that aren't in the following quarters. So expect to see a little drop, you know, sequentially, and then a pretty stable number from there forward. That'll mean, you know, there will be some expansion in some teams and some, you know, we're still looking at, you know, cost savings across aspects of the company, in particular things like our software services, you know, the services we, you know, that become part of our cost base to operate the business from external sources. aspects as well too, but they're a pretty stable number going forward from Q1.

Okay, just one last one for me. On the product revenue growth, you guys spoke to the large contract in the comparative period, I believe it was G7XO. Can you give us a sense of how much G7XO sales you have in this Q4 relative to last year's Q4?

I mean, the overall hardware number was pretty much similar, but if you pulled up that one order, the growth would have been in the 50%, 60% range. I think a better way to look at it is sequentially. Always, for us, the business has tended to be somewhat cyclical, with Q4 always being our best. There's lots of different reasons for timing with that. But the sequential growth from Q3 to Q4 was 25% in the G7 and XO hardware. So really strong performance in that base if you remove the reflection, which is another way to look at it without looking at that large single order that impacted our prior year. Fantastic. Thanks. I'll pass the line. Thanks.

The next question comes from Doug Taylor with Canaccord Genuity. Please go ahead.

Thank you. Good morning. I'll start with another question on the G6 rollout. Perhaps you can add a little bit more colour on how it's shaping up relative to your expectations at this point. And if I can, I'll ask if you'll just comment on, I think you previously said 45,000 to 50,000 units was an achievable goal for that product in year one. Is that still a relevant target given what you've seen so far?

Yeah, I think so. I think we're seeing, you know, we're now just getting it into the marketplace. We're building our pipelines. Again, more of this will be weighted to the last half of the year, but we're still seeing that that kind of an opportunity is there. Doug, and I think that it's really, that's the build into the next year, if you want to look at it that way as well, too. You know, this is a sizable market. I think the velocity that we're going to exit this year at will be exactly where we'd like to be.

Now that that product's been in the market, have you seen any competitive response from your key competitors?

Not really. I think it's a bit too early. Technically, that's going to take a long time for them to try to compete technically, and it's already a market that's pretty price-driven, so we don't really think we'll see much of a shift in the business model from our competitors. It's really just a question of us getting in front of the customers and getting the product trialed in the field and then starting to get that order flow coming in.

All right, and I'll shift gears here maybe with a question for Shane. You've got your new EBITDA definition, which you expect to flip positive by the end of the year. My question is, given everything you've said about recapturing working capital, but also ongoing CapEx, can you speak to the comparability of that new adjusted EBITDA with positive overall free cash flow? Should those overlap and be coincident, or what should we be thinking about when comparing those two?

Sure, Doug. Yes, they're largely aligned. The new metric for adjusted EBITDA and our exiting at the year with that metric being positive, but also with our desire and our goals to exit fiscal 2023 being free cash flow positive as well, so that both are in alignment. All right. I'll pass the line. Thank you.

The next question comes from John Xiao with National Bank Financial. Please go ahead.

Good morning. Thanks for taking my questions. I just wanted to ask about your shipping costs lately. Do you see any reversal given that the global shipping costs have declined a lot? And also same question to your components from your suppliers. And what is your outlook on these two items in 2023? Thanks. Sure. The

We certainly have seen a lessening of the impact of all the global supply chain impacts that we've seen over the last year. That's partially because I think that the team in our operations group has done a very good job. But as you say, the world is changing a little bit. So those are both portions of where we feel there's a – those are both areas where we feel there's positive uptick to happen to get us to that 40% gross margin in the hardware side. So, again, that margin improvement is going to come partially from the price increase, partially from some of the kinds of things you're talking about, and partially from newer technology being added into the G7 core line as well.

Okay. Another question I have is on the service revenue. I understand the strong year-over-year growth is mainly due to a higher number of devices activated. So how should we think about the growth of your service revenue next few quarters just based on your current backlog of devices that are not yet activated?

Yeah, good question. I mean, the last period of time here certainly was impacted by a couple of very large orders that took a long time to deploy. That's a bit abnormal. Like the length of time they took was a bit abnormal in that base. But going forward, what we're seeing is I think a strong cadence on that software side, a little more regular as it's going up now at the end of the day every quarter. Also see, so to your question on the services side itself, you're going to see that improvement in growth throughout the year. The other thing I'd point to is the rental side. You've had We've started, you know, we exposed that separately just to give some good visibility there. Rental is going to have strong growth year on year. It's a seasonal business, though, is one thing to keep in mind. So it's driven by facility turnarounds and construction. So our Q1 and Q2 are our lighter quarters, and our Q3 and Q4 are our stronger quarters. So, you know, overall service is sequentially strong growth. In the rental side, you'll see year-on-year strong growth. Okay, thanks. That's great.

Caller, you're on top of the line.

The next question comes from David Kwan with TD Securities. Please go ahead.

Hey, guys. I was curious on the G6. I think you talked about previously, I think, targeting selling into your existing customer base. Is that still the case? And then secondly, you know, how much interest are you seeing that's being generated from kind of inbound interest versus outbound lead gen?

Sure. I'd say certainly it is still our goal that the core of those sales will come from our existing customer base in the first year. You know, there's a lot of overlap. Again, to be really clear, the six doesn't cannibalize any of the seven business. It's a different application on the sites and facilities that we work in. And, yeah, it's a combination of inbound interest and outreach as well, too, that's generating the pipeline right now.

Thanks, Scotty. And in terms of the gross margins, you talked about trying to get it close to 40% on the product side, 75% on the services side. Should we expect that to be relatively linear as we progress through the year, or could it be a little bit more lumpy, particularly on the product side?

On the service side, very linear through the year. Product side, a little bit lumpier, but still fairly linear going through the year.

Oh, sorry. And then this is the last question from me. Understanding, I guess, that some of the R&D work, you know, is pushed back, I think, to help conserve capital here. But maybe can you talk about the product pipeline, including maybe what's higher up on the priority list in potential timelines?

Sure. I mean, there's still a lot of things happening on the 6. There's different new feature sets coming out for it and new capabilities. It'll open some other market aspects other than that zero maintenance side in the more traditional single gas world. A lot of work on the 7 to add new services to the 7 and new feature sets and some updates coming down the pipe. We don't like to talk too much about it because we want to sell the products we make right now. But, you know, a strong, I'd say, you know, just a strong strengthening of the services we provide, of the, you know, higher-end data services, as well as just an ongoing progression on the hardware.

Right. Thanks, guys.

The next question comes from Raj Sharma with B. Reilly Financial. Please go ahead.

Hi. Thank you for taking my questions. Congratulations on good, solid, continuing growth. I know you talked about a reasonable expectation for G6 this year would be about 45,000, 50,000 units. Could you remind us the price point on that and what the revenue sort of expectation would be?

Yeah, so, I mean, the G6 really sells primarily through that sort of leasing-like program, and it's a $10 a month offering. You know, if we look at the kinds of numbers we're talking about, you're talking about a hardware impact for the year of, say, you know, $8 to $10 million with a services run rate in the, you know, just under the $2 million number at the end of the year.

Great. Thank you. And then just wanted to understand a little bit about if you've seen a slowdown that's impacting impacting sales in Mideast Asia, or, you know, particularly, was the US sale down at all due to any slowdown you were seeing? Or was it entirely related to that big, big, big sale last year?

Yeah, no good questions. The Middle East, actually, we're seeing really strong growth opportunities. And, you know, keep in mind, we're really, we don't, it's a market we invested in a couple of years ago by putting feet on the ground, by getting appropriate certifications doing you know dotting all the i's crossing all the t's so we can sell into it so you're now starting to see some real growth the last quarter saw two of our largest orders ever and those are both from customers who have you know strong ongoing appetite so we expect to see that become a significant contributor to the uh company's revenue over the year uh u.s strong pipeline growth i mean that you know that uh single largest order last year makes a pretty big impact to try to overachieve that at the same time. But I'd say the pipeline strength is there, the growth in that pipeline is there, and we're still seeing that quarter-on-quarter, year-on-year growth as we go forward now in the U.S. market. So not a big impact. I mean, there's a lot of sensitivity to watch what's happening in the markets with uh you know the potential recession all the other things along those lines uh but we are you know again we're not seeing a major impact with uh really many of the core markets we're in right now right and then what what would be signs of a slowdown would you um you see more leasing um you know lower product revenues up front

and would any regions look more vulnerable than not?

For us, it's still so much about gaining market share that there's a bit of a balance there. Markets like the Middle East, where we're pretty new, you could see retraction in the overall market, but we'll still see strong growth. And core markets like the U.S. and Europe, uh you know in canada canada is very oil and gas focused for us so that's you know a different dynamic and it tends to be quite strong right now i think well you know where we see it where we would see it if it's happening is in the strength of our uh sales pipeline you know the the uh length of time it takes to close an order and just the build of that pipeline strength going forward and that's something you know we watch very carefully i think the more vulnerable markets are uh You know, it's probably more in the municipalities that we deal is one of our, you know, vertical markets that has more sensitivity. I think the heavy industrials tend to be doing pretty well. So, a little bit, you know, it's probably more vertically oriented than geographically. If you're trying to look at it, if one's trying to guess the geographic spaces, you know, Europe's probably a little more vulnerable than North America. But, you know, again, it's not something that we're seeing to be, you know, the opportunity for our growth is still very strong in all those marketplaces.

Great, great. Thank you for answering my questions. Again, a great quarter, and good luck. I'll take it offline. Thank you.

Once again, if you have a question, please press star, then 1. The next question comes from Brian Fast with Raymond James. Please go ahead.

Yeah, thanks. Good morning, guys. Could you just maybe dig a bit deeper on the commentary surrounding the lease monetization? I mean, is the goal to monetize that entire amount and maybe just some color on timing and if this would be seen as kind of a one-time event?

Sure, Brian. Yeah, the number of... Finance leases that the company has has grown 121% year over year to finish the year at 36 million. What the structure and the form of that takes is probably an ongoing item we're looking at right now. And whether it's the hardware component of that or the service more likely on the hardware side to be financed. And that would be a one-time opening item, but ongoing from there. And we're looking at that as something early in 2023 to take place there.

Okay, thanks, Shane. And maybe just some color on the rental opportunity. Obviously, we saw a nice uptick in the quarter. Are you seeing clients maybe turn to that option given the uncertain macro outlook and they're maybe pushing out their purchase commitments? Just some more color there.

I wouldn't say that's really the driver. The driver really is our entry into the rental market that was really focused on two things. The XO product, you need the area monitors to be in that marketplace, and the investment we made in both people and inventory to set that up last year. uh it's something where you have nice visibility of it because these projects are you know planned months years in advance so you can see the pipeline build and we can see you know we can already see a very strong year uh this year again cyclical is one thing to keep in mind on the rental q1 q2 uh lighter year lighter quarters q3 q4 the strongest quarters but i really say it's its own market in that basis two things there's so i'll add one quick thing to the rental side For us, it's good revenue, it's very good margin, but it also exposes us to new customers. These turnarounds and construction aspects are happening at different timelines than maybe their purchase of their new hardware for their multi-gas or perimeter monitoring or area monitoring. So the rental is actually exposing us to new customers on a daily basis, which is another real value add because once they've seen the product and they've seen the services side, It's more likely for us to see a rental turn into an actual purchase at the end of the day versus a purchase turn into a rental, I'd say.

Okay, thanks. I appreciate the color. That's it for me.

This concludes the question and answer session. I would like to turn the conference back over to Cody Slater for any closing remarks.

Thank you, Operator. I would just like to thank everyone today for their questions and their participation, and we'd like to wish you all a good rest of the day. Thank you very much.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.