Evolv Technology Q4 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you wish to queue up for questions today, please press one followed by zero on your device. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Brian Norris, Senior Vice President of Finance and Investor Relations. Please go ahead. Thank you, Grace. Good afternoon, everyone. Welcome to the call. I'm joined here today by Peter George, our President and Chief Executive Officer, and Mark Donohue, our Chief Financial Officer. This afternoon, after the market closed, we issued a press release announcing our Q4 results and our business outlook for 2023. This press release, along with an accompanying slide presentation, is available on the IR section of our website. During today's call, we will be making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events, including, but not limited to, statements regarding our future operations, growth and financial results, our potential for growth and ability to gain new customers, demand for our products and offerings, and our ability to meet our business outlook. All forward-looking statements are subject to material risks, uncertainties and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from these forward-looking statements because of a number of risks and uncertainties, including, without limitation, the risk factors set forth under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31st, 2021, filed with the SEC on March 28th, 2022, and as updated in other documents, including our quarterly reports on Form 10-Q, all filed or furnished with the SEC from time to time. The forward-looking statements made today represent our views as of March 1st, 2023. Although we believe that the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance, or the events and circumstances reflected in our forward-looking statements will be achieved or will occur. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which we believe provide additional insights for investors. These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Reconciliation between non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. Tonight, we will also be discussing key metrics such as annual recurring revenue or ARR, remaining performance obligation or RPO, deployment activity, and total number of subscriptions, each of which we believe are helpful to investors in understanding the progress we're making as a business. Before I turn the call over to Peter, let me briefly highlight here on slide three that we will again be hosting a variety of live and virtual investor events throughout the quarter. We will be hosting events with Cowen, Stifel, Cantor Fitzgerald, and Northland Capital. We're also excited to announce that we'll be hosting the first ever Evolv Technology Analyst Day at Fenway Park in Boston on May 25th. That event will take place immediately following the JP Morgan Technology Conference, which of course, is considered an annual rite of spring for many tech investors. More details to come, for now, please mark your calendars for Thursday, May 25th. For more information about our IR plans, please contact me at bnorris@evolvtechnology.com. With that, I'd like to turn the call over to Peter. Peter? Thanks, Brian, and thanks everyone for joining us today. We're pleased to be reporting strong Q4 results, which capped a historic year for the company. Our results were highlighted by record growth in new customers, revenues, ARR and RPO. We have a lot of exciting news to share with you today, but before we do that, let me take a moment here on slide five to remind everyone of our mission, which is to democratize security, making venues, facilities, and people everywhere more secure. We're focused on making the world a safer place and more enjoyable place to live, to work, to learn, and to play. As we prepare to commemorate our 10th anniversary as a company later this year, I can tell you categorically that the mission our founders laid out in 2013 is timeless and yes, intact. We are a mission-driven company made up of mission-driven people as we are the human security company. Moving to slide six. Revenue in the Q4 was $20.9 million, up 217% year-over-year and 26% sequentially. For the year, revenue was $55.2 million, up 136% year-over-year. Our growth continues to reflect strong customer acquisition activity and the continued expansion of our subscription base. We welcomed over 100 new customers in the Q4 and nearly 300 in the year. We activated 575 new multi-year subscriptions of Evolv Express in the Q4 alone, and nearly 1,600 in all of 2022. Further, we grew ARR from $13 million at the end of 2021 to $34 million at the end of 2022, reflecting growth of over 160%. We anticipate ARR to again double in 2023, which, combined with expanding gross margins and prudent expense management, should enable us to reduce our adjusted EBITDA losses by as much as 20% in 2023 while reducing our cash usage by about $20 million. We expect to end the year with about $170 million in cash. Mark will share more thoughts on our outlook in a few moments. Moving to slide seven. We're seeing several interesting dimensions of our leadership emerging. One positive indicator is bookings activity, which increased 27% sequentially and 222% year-over-year. Other powerful measures include we had 14 transactions of at least $1 million of TCV in the Q4, compared to three in the Q4 of last year. We grew our install base of Evolv Express subscriptions from 703 at the end of 2021 to 2,267 at the end of 2022, reflecting growth of 222% year-over-year. We further expanded our reach and now have Evolv Express units deployed in 45 U.S. states as well as Puerto Rico. Finally, perhaps the best sign that our value proposition is resonating in the C-suite of major enterprises, we're pleased to announce that Evolv Express is now installed at three of the Fortune 20 and eight of the Fortune 100 companies. We believe that our results continue to reflect save several major trends. The first is the unfortunate and tragic trend in escalating gun violence in the United States, which is reflected here on slide eight. According to recently released reports from the Gun Violence Archive, there were 648 mass shootings in 2022. This is over twice as many mass shootings as occurred annually just a decade ago. This is the mission we were born to undertake, to democratize security and make venues and people safer and more secure. We're doing this one customer at a time, one venue at a time, and one entryway at a time. As you can see here on slide nine, we screened close to 115 million visitors in the Q4. During 2022, we screened over 350 million visitors, which is equivalent to the full population of the United States. It's also more than twice the number of visitors we screened in 2021. We have now screened over a half a billion visitors and expect to surpass 1 billion visitors screened by the end of 2023 as the momentum of our customer base and deployments accelerates. In terms of making a fundamental difference in visitor security, our customers used Evolv Express to tag over 176,000 weapons in 2022, including 93,000 guns and 83,000 knives. In the Q4 alone, they tagged nearly 70,000 weapons, including 36,000 guns and 33,000 knives. That's an average of 400 guns every single day. Turning to slide 10. Another significant development is our growing technical advantage in the market. Building on our already strong technical lead in the Q4, we released several new major advancements. First, we've expanded our API library, extending integration from Evolv Express to various security endpoints such as video management systems, video analytics, incident management systems, and mass notification systems. We released several new data extract APIs, which allows customers to ingest Evolv Insights, security screening, and ingress data into their existing data infrastructure. Finally, we launched our new Evolv Insights dashboard, which enables our customers to better understand security staff screening performance. Because our customers are on long-term subscription contracts with us, they can easily take advantage of these breakthrough capabilities as they are released over time through our powerful cloud-based environment. More venue operators are turning to us to power their digital thresholds. We are digitally transforming security with critical capabilities, not only in weapons detection but in adjacent areas such as crowd assessment, mass notification, and people flow analytics. These capabilities enable us to continually raise the bar of innovation and bring better and better products to the market. 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 subscription contracts. With better data and better products, we're able to deliver a superior value proposition to the market. We're able to classify threats based on a unique, large, and rapidly growing data set that makes it possible with our advanced algorithms to improve detection accuracy over time, which we believe makes our customers' venues safer than ever before. Turning to slide 11, we believe that our highly differentiated new customer acquisition efforts provide a first-mover advantage due to the strong network effect dynamics of our market. We are proud to partner with over 500 customers across our key vertical markets to create safer zones for them and their visitors, employees, students, and yes, fans. As highlighted here on slide 12, our strong new customer acquisition activity continued in Q4. We added 106 new customers in the quarter, up from our previous record of 92 in the Q3. Our measure is arguably a conservative view because for us, one customer could mean a dozen or more buildings in one new school district or a new healthcare system. For example, our single largest customer, a school district, now has over 160 Evolv Express units deployed across dozens of high schools and middle schools. We're excited to welcome dozens of iconic venues, including View Boston, which sits high atop the Prudential building here in the Back Bay, the Norton Museum of Art, located in West Palm Beach, Florida, the Honolulu Museum of Art in Hawaii, the Ocean Casino Resort in Atlantic City, the Seabreeze Amusement Park in New York, the International African American Museum in Charleston, South Carolina, and the Ronald Perelman Performing Arts Center in New York City, which is set to open later this year. As highlighted here on slide 13, our accelerating new customer activity, coupled with expanding deployments among our existing customers, is leading to significant growth in our install base of Evolv Express subscriptions. In the Q4, we deployed a record 575 Evolv Express units that are powered by long-term four-year subscription contracts. We now have over 2,200 Evolv Express units deployed. Moving to slide 14. We have seen and expect to continue to see momentum with our channel partners, which helps us extend our reach to certain geographies and vertical markets, primarily in healthcare and education. Over 65% of our sales activity came from or through a channel partner in 2022. We expect to continue to see strong activity with Johnson Controls, the newly formed Securitas Technology, and Motorola Solutions, as well as dozens of other regional partners like Alliance Technology Group and Stone Security. These relationships will be central to our plans to scale over time. Turning to slide 15. We remain well-positioned in the major vertical markets that have been among the earliest adopters of our technology, specifically education, healthcare, and professional sports. The education market remains exceptionally large, with nearly 130,000 schools across the nation, half of which are middle schools and high schools. Gun violence in schools remains a top issue for district leadership, school administrators, parents, teachers, and students. The tragic news is that 1,676 children under the age of 18 were killed by gun violence in 2022. That's five of our children every day. Unfortunately, that rate has increased here in 2023. The Centers for Disease Control and Prevention reports that firearm-related injuries have now surpassed motor vehicle accidents and has become the leading cause of death among children and adolescents. Add to this the number of children that sustain non-fatal injuries and the escalating anxiety levels among young people, and the pain and emotional damage that is being created is likely to be felt for generations to come. For us, that starts with students and their schools. This continues to be our number one end market. We partner with our customers to create safer zones in over 400 school buildings, up from 200 at the end of the Q3. Another measure of our progress in education is our penetration rate among the 100 largest school districts in the country, which now stands at eight. We're pleased to welcome the Duval County School District in Florida, the Columbus School District in Ohio, the Johnston County School District in North Carolina, and the Buffalo Public School District, which is the second-largest school district in all of New York. Combined, these four customers are in the process of deploying 200 Evolv Express units. All told, the education vertical represented half of our business in the Q4. Turning to slide 16, another major market for Evolv continues to be healthcare, which includes over 6,000 hospitals and where over 70% of workplace violence takes place. Hospital administrators are making investments to enhance patients and safety, and we stand well positioned to fill this market need. We added dozens of new healthcare customers in the Q4, including the University of Illinois Hospital, Grand View Health in Pennsylvania, Meritus Health, Western Maryland's largest healthcare provider, and Stony Brook University Hospital, Long Island's premier academic medical center. We're pleased to report that we added another 25 hospitals in the Q4 and now serve nearly 100 hospital buildings across the country. That's up from just seven hospital buildings a year ago. We're absolutely honored to be the trusted screening partner for these medical professionals and their patients. One more market to highlight here on slide 17 is professional sports, where we continue to transform the guest experience for millions of fans at stadiums and ballparks around the country. We enable fans to enjoy a faster, more convenient, and more secure screening experience. We added several new professional sports teams in the Q4, including three Major League Baseball teams, the Minnesota Twins, the Philadelphia Phillies, and the Houston Astros. We also added another NHL team, the Tampa Bay Lightning, and our seventh Major League Soccer franchise, the Colorado Rapids. We now screen millions of fans of nearly three dozen professional sporting teams across the NFL, MLS, MLB, and NHL. We expect that these three markets, education, healthcare, and professional sports, along with warehouses and tourist attractions, will be central to our expansion plans in 2023. To summarize here on slide 19, we're reporting strong Q4 results, highlighted by record revenues, ARR, and the RPO. We're seeing growing market awareness and strong new customer acquisition activity. We're continuing to see evidence of the leverage in our business model. We have an exciting growth plan for 2023, which is focused on again doubling our ARR, and we believe that we remain well capitalized and believe that the strength of our balance sheet will enable us to reach cash break even without any additional capital. With that, let me turn things over to Mark, who will take you through our financial results and our outlook. Mark? Thanks, Peter. Good afternoon, everyone. I'm going to review our Q4 results in more detail and walk through our thoughts on 2023. I will start here on slide 20. As Peter mentioned, total revenue was $20.9 million, up 217% year-over-year, 26% sequentially. This compares favorably to our previously issued guidance of $12 million-$14 million. Our revenue growth in the Q4 continued to be fueled by strong new customer acquisition activity, continued hardware purchase activity, and rapid acceleration in subscriptions. GCV was $57.6 million, up 222% year-over-year, 27% sequentially. We saw broad vertical market contribution with strength in education, healthcare, and professional sports. Moving to slide 21, ARR at December 31, 2022, was $34.1 million, compared to $12.9 million at December 31, 2021, reflecting growth of 164% year-over-year and 19% sequentially. This compares favorably to our previous guidance of $31 million-$32 million. Remaining performance obligation, or RPO, as of December 31, 2022, was a record $144.6 million, compared to $51.4 million at December 31, 2021, up 181% year-over-year and 32% sequentially. Flipping to slide 22, adjusted gross margin, which excludes stock-based compensation, was 1% in the Q4 of 2022, compared to negative 9% in the Q4 of last year. As a reminder, we recognize all the product costs related to product sales in the period of the sale rather than over the associated subscription term, which is typically four years. As we've discussed previously, our gross margins do not yet reflect the overall business value we are delivering to customers, as we're using two very different accounting treatments between our pure subscription sales and our hardware purchase subscription sales. As a reminder, since August of last year, we have been transitioning more of the pipeline and opportunities to a pure subscription structure. As we continue this shift and we continue to engineer product costs down, we expect overall gross margins to continue to expand. Adjusted operating expenses, which excludes stock-based compensation, loss on impairments of lease equipment and certain other one-time expenses, were flat sequentially at $19.7 million, compared to $19.8 million in the Q3 of 2022, and $15.7 million in the Q4 of last year. The increase year-over-year primarily reflects headcount growth across the business, particularly in revenue generating positions and in research and development. We exited the quarter with 225 employees, compared to 214 employees at September 30, 2022. For context, we added approximately 12 employees in the back half of 2022, primarily in sales and support. We expect to continue to moderate headcount growth in 2023. Net loss was $28.1 million, compared to net income of $4.8 million in the Q4 of last year. As a reminder, net income in the year-ago period was significantly impacted by one-time non-cash valuation benefits. Adjusted loss, which excludes stock-based compensation, non-cash charges, and other one-time items, was $18.1 million, compared to $16.3 million in the Q4 of last year. Adjusted EBITDA, which excludes stock-based compensation and other one-time items, was negative $17.8 million, compared to negative $15.2 million in the Q4 of last year. This loss was slightly higher than anticipated due to a higher blend of purchase subscription versus pure subscription sales. Turning to the balance sheet, we ended the quarter with $230 million in cash and cash equivalents, an increase of $11 million sequentially. Let me take a moment to walk through the major elements of our change in cash from the Q3. First, we had a net loss of $28.1 million in Q4, which resulted in a net use of cash from operating activities of about $5.3 million. We used about $3.9 million for the purchase of property, plant, and equipment, primarily for Express Units deployed at our customers. We used $9 million to extinguish the final piece of long-term debt, which was a holdover from our pre-IPO days. All of this was more than offset by a $30 million drawdown we completed under our new non-dilutive financing program implemented in the Q4 with Silicon Valley Bank. The drawdown was equal to all of the cash we had previously deployed in the preceding seven quarters to support our pure subscription model business. Going forward, we expect the program will enable us to effectively offset any cash used to support hardware assets for our pure subscription model. I wanna close with a few comments about how we're thinking about 2023, which is highlighted here on slide 23. For context, we are beginning to recognize seasonality trends in our business and believe a greater percentage of our activity will come in the H2 of the year, like we saw in 2022. We expect revenues of between $55 million-$60 million in 2023. This assumes a meaningful transition to our pure subscription model, effective January 1, 2023. As a reminder, in 2022, almost 60% of our revenue and about 65% of our unit bookings was related to our pure subscription model, which requires us to accelerate the hardware revenue recognition in 100% of the related product cost. These dynamics have historically disguised the full term gross profit of our customer transactions. Our plan is to minimize these types of transactions going forward. That said, we're looking at innovative ways that venue operators could own Evolv Express units without placing the typical timing-related burden on our gross margins. More to come on that once we explore further. Using the same purchase subscription to pure subscription revenue mix in 2022 that we are currently estimating for 2023, our total revenues would have been approximately $30 million, rather than the $55 million we delivered last year. Our goal of delivering $55 million-$60 million in revenue in 2023 would have reflected growth of approximately 90% rather than what appears to be about 10% growth. We did not make the subscription transition in 2023, and our purchase to pure subscription revenue mix in 2023 was consistent with what we had in 2022. Our outlook for total revenues in 2023 would have been more in the range of about $115 million-$120 million, reflecting growth of over 100%. The net effect is that 2023 becomes a bit of an odd comp year, but we believe that the transition to more subscription sets up for high quality, high margin, and highly predictable revenue growth going forward. We expect to end 2023 with ARR of between $65 million-$70 million, compared to $34 million at the end of 2022, effectively doubling our recurring revenue this year. We expect gross margins to improve throughout 2023 and are currently modeling between 30%-35% for the full year. This reflects the benefits associated with the across-the-board price increases we implemented effective January first and an overall improvement in product subscription mix. We will continue to carefully manage expense growth and leverage the investments we made over the last two years. Of the hiring that we intend to do this year, we expect more than half to be customer-facing, revenue-generating roles. We expect to reduce our adjusted EBITDA losses in 2023 by about 20% year-over-year to approximately $55 million. Finally, we expect to exit the year with cash in the range of $165 million-$175 million. With our new non-dilutive financing program in place, investors should expect that our cash usage will be closely aligned to our adjusted EBITDA. We had a strong Q4, which capped a historic year of growth for the company. We expect to invest appropriately in the business where we see opportunities and remain excited about our long-term prospects. I'll turn the call back over to Brian. Thank you, Mark. At this time, I'd like to turn the call back over to our friends at AT&T to open up the call for Q&A. Again, we're gonna ask participants to limit themselves to one question and one follow-up. 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 one then zero at this time. We'll go to the line of Mike Latimore with Northland Capital. Please go ahead. Great. Thanks. Yeah, good afternoon. Super results there. I mean, the bookings growth of over 200% is very impressive, and the number of seven-figure deals, you know, really stands out as well to me here. Congrats on the year and quarter. I guess two questions. If you, if you think about the SaaS for the subscription business, I think you said it was 55% of bookings, I believe, in 2022. How are you thinking about that as a% of bookings this year? Mike, this is Mark Donohue. You know, we're really trying to shift the business, our hardware-enabled SaaS business to subscription. I would expect that the subscription side of our business will be a pretty heavy number. We made comments in the script about starting to move away about from selling hardware. No matter what, whether the hardware is rented through us or bought through a third party in the future, we'll always be recognizing that subscription. I would expect the subscription line to start to grow substantially, and move towards 80% plus of our business going forward. Yep. Got it. In the last quarter, you talked about kind of redesigning the hardware. Can you just kind of give a little bit of update on that in terms of timing and, you know, what kind of cost changes you might see there? Sure. Hey, Mike Latimore, it's Peter George. We're spending this year doing a cost reduction plan. We call it 2.0 or next generation product that will be available in early 2024. That's on track. We have a lot of confidence that we'll be able to deliver that in earnest and at scale in the beginning of 2024. It'll have very similar attributes and capabilities and features of our existing product, but will be cost reduced, which should, you know, help our gross margins next year in a pretty significant way. Between the move to subscription this year and then the cost-reduced next generation 2.0, we feel very, very good about our gross margin outlook in the next couple of years. Yeah. Yeah. Okay. Excellent. Well, thanks very much. Congrats again. Thanks, Mike. Thanks, Mike. Thank you. Next, we'll go to the line of Shaul Eyal with TD Cowen. Please go ahead. Hey, guys, this is Hugh on for Shaul. Congrats on the strong quarter. Thank you. Thank you. Two... First for Peter. You guys talked about, I think you said three of the Fortune 20, eight of the Fortune 100. Can you tell me, is your,... How's that discussion progressing? Has it changed in light of the uncertain economy? Is it... Are the motivations changing because of the economy or is it just still being primarily or solely driven by the sort of the increasing number of mass shootings we're seeing? Yeah. I think the combination of the anxiety in mass shootings that continue to be prevalent everywhere. You know, in the month of January, Hugh, there were 30 days in January and 48 mass shootings in the United States. In California alone, in a six-day period or a 13-day period, there were six mass shootings. It's becoming, you know, a daily event in a such a sad way that I think that's driving- CEOs at major enterprises and every executive to think first about the safety of their employees and the safety of their people. That's, you know, encouraging them to make decisions, with Evolv to keep their employees or get their employees back to work in the office in a hybrid model or fully, but know that when they come back to work they're gonna be safe. Workplace violence is a big issue, and we can certainly help with our technology and our people. Okay. I wanted to squeeze in one for Mark about the gross margin embedded in the RPO. Peter, back to you again. When you spoke a lot earlier about what seems to be a strategy for expanding, you know, data in and data out customers and integrating with other platforms. Yeah. This question is really about the sort of add-ins that we talked about earlier in your life cycle. I think, we talked about ticketing and things like that. Yeah. When you're having discussions with your customers, is there one particular application that a lot of them are interested in? There are several that come up, and a lot of the infrastructure actually is already there. You know, video management system, the VMS systems from the leading providers that are already there, they want us to connect to those. Access control systems, turnstiles, badge readers, they want us to connect to those systems. Video analytics systems for outdoor detection of weapons. As you know, we can find concealed weapons, but connecting to companies that are doing video analytics for gun detection, so we can see somebody who's drawing a gun outside of a building is something that they want us to connect to. You know, in addition to biometrics and ticketing that we've talked about before, you know, there's a high desire to connect the security infrastructure to give companies and security people situational awareness that they just didn't have before. Those are the three or four areas that we're integrating with our key customers. Thanks, Peter. Great. Your question on RPO, Hugh. You know, for the quarter we're at, we're at the $144.6 level. That represents the unbilled activity on both deployed and undeployed units over the next 3+ years. Some of this is pure subscription, and some of it is the back-end software portion of hardware that we've already brought together. When you look at the combination of those two things, we have analyzed that the margins sitting within that number are about 65%+ right now that we'll recognize over the next three years. Great. Thank you, Mark. No problem. Thank you. Thank you. Thank you. Thank you. Next, we'll go to the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead. Hi, guys. Thanks for taking my question. Congrats on the quarter and strong finish to the year. Can you just walk through me, I guess, the sequential growth in subscription revenue? You know, given how strong AR growth was last quarter and this quarter as well, I would've thought you would've seen a bit more flow through to subscriptions. I guess can you just help me understand the dynamics there? Sure. Brett, welcome to the call. We appreciate having you on board. you know, in terms of subscription revenue quarter-over-quarter, you know, we made an announcement to both our sales force and as well as to the customer base that we were moving to more full subscription beginning on January first. We executed on that quite a bit. the Q4 was actually bent to be more purchase subscription than it was pure subscription as we kinda went through that process. In the beginnings of Q1, we've already seen that trend starting to change. But in terms of the growth in subscription or the ARR, one thing you gotta remember is that, a lot of what we booked in Q4 will not show up until Q1. Most of what we did incrementally in ARR from Q3 to Q4 is represented on what we shipped at the end of Q3 in the very beginnings of Q4. We tend to have, you know, more back-end loaded quarters. We probably do about half our business in the first two months and the other half in the final month. That really kinda. You know, I would say if you look at kind of a blend of Q3 and Q4, that would give you a sense of where that is. You know, it'll but what we did in Q4 is a good indication of how, you know, the strength we may see in Q1. Perfect. No, that's helpful. You mentioned a bit about seasonality. You know, you guys are growing, you know, extremely fast from the units deployed, you know, and seemingly, you know, not being impacted by seasonality as every quarter's a new record. When we look at 2023, should we expect maybe units deployed, you know, in the H1 to be lower than what we've just seen in the last couple of quarters and then to, you know, pick up again in the back half of the year? Yeah. I think a couple things to understand is that we're really starting to see verticals like K-12 and healthcare become a very prevalent part of our business. You know, those two verticals together will likely be more than 50% of our business combined as we go into next year. Between those two verticals, we're starting to see trends in their buying patterns and their budgetary situations. You know, coming out of Q4, it was very strong. When we look back at last year and some of the trends we're seeing early in this year, we see a strong pipeline, but, you know, actually getting past the goal line, we think will be stronger in the H2 than it is in the H1, in totality. Perfect. Thank you, guys. Really appreciate it. Thank you, Brett. Thanks, Brett. Thanks, Brett. Mm-hmm. Thank you. As a reminder, if you wish to ask a question, please press one then zero at this time. We'll go to the line of Brian Ruttenbur with Imperial Capital. Please go ahead. Yes, thank you very much. First of all, question on cash, on the year and your fiscal 2023 guidance. It's $165 million-$175 million. Is that assuming any debt? Is that a net cash number? You ended the quarter. Just trying to understand your balance sheet, where it is right now, you know, with cash and some debt, roughly $20 million of debt. Maybe you can walk me through that a little bit, where you expect your cash debt balance for 2023. Yeah. Brian, it will be. That number will be our cash figure. We'll obviously have a little bit more debt that comes on. As we start to ship the subscription business, especially the pure subscription business, as we buy that asset, we'll take up more debt throughout the year. We're probably heading in the range of another, you know, $10 million-$20 million in debt, depending on how much volume comes through that purchasing methodology. The cash number we're showing you is the pure cash number, not the net cash number. You know, you could do the math on the balance sheet for that. Okay. Perfect. Thank you very much for that color. Then in terms of guidance, in terms of revenue, can you give us I know this has been asked a little bit, but it seems like a lot of growth is gonna happen in subscription. Can you give us a little breakdown of your guidance between product revenue, subscription and service? 'Cause it looks like it's a very different mix in 2023 versus 2022. I think you're right to say that that mix will be quite different. I would say what will really happen in the early parts of the year, let's say the H1 of the year, you'll see the product number continue to be relevant, especially in Q1, and then start to dissipate throughout the year. I don't think our product revenue will ever go to zero. We'll always be selling some element of product through. Our focus, and like I think I said to one of the other gentlemen on the call, is to really push that subscription line. Going forward, we are either going to be selling pure subscription, which gets recognized in that pure subscription line of the three lines on the P&L, or we're gonna be selling the subscription that goes along with hardware that's likely to be purchased through a distributor, which will also go through that line. I think as you model things throughout the year, you should probably think about putting the subscription number up higher and higher as a percentage. I would say over the next 18-24 months, we're probably gonna try to achieve 80% subscription during that period. Okay. As a follow-up to that, just trying to model Q1, should it look something similar to Q4, or should we see a big drop in terms of product? 'Cause product was much higher than I anticipated in that Q4. Yeah. I think product will continue to be a pretty prevalent number, in Q1. Mostly because we continued to take orders as we exited the year, and we're continuing to deploy orders out of our backlog. While I don't think the number will be quite as high, it will be a meaningful number in Q1 and start to really decline Q2 forward. Okay. Very good. Thank you. Also the services revenue then typically when you have high product revenue, you also have high services revenue. It should be also. Is that a good logic or is there something I'm missing there? The services revenue, just remember that this, we took the hardware revenue as part of a deal, and that happens one time. For all the hardware purchase orders that we've done, which you're seeing the recurring nature of in the service line, we'll continue to see that. We also have a little bit of revenue in the service line that happens due to installations and things of that nature. Again, as we go through this, I think what you'll start to see is that we'll move towards, I would say the subscription line being about 80% and the services line being 15%-20% with some points in product over the long term. Great. Thank you very much. Thank you. I have no further questions in queue. We'll turn the call back over to Peter George for closing comments. All right. Thank you very much. Look, everyone, thanks so much for joining us. We had a historic year in 2022, capped by an amazing Q4, where we set records in revenue and ARR and RPO. Because we have this amazing sensor platform, our growing awareness in major cities, is making us ubiquitous in places. If you go to New York or Nashville or Atlanta or Chicago, you'll see us in ballparks, in museums, in schools, and tourist sites. That has a force multiplying effect when people experience going through the system, it's very helpful for us. We're continuing to get awareness in the market that's really, really valuable. We're getting tremendous leverage in our business model, this year. In fact, we grew revenue twice as fast as we grew expenses. We're excited about 2023 and our growth plans to double ARR. Finally, as we mentioned, our balance sheet, we're well capitalized and feel very strong about exiting the year with a lot of cash on our balance sheet. Thank you all for joining us. Remember our Analyst Day on May 25th. We'll be at the iconic Fenway Park. We'd love to have you all there. Thank you for joining us today. 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. You may now disconnect.