John Carrington - Chief Executive Officer Bill Bush - Chief Financial Officer Bob Schaefer - President of AlsoEnergy Prakesh Patel - Chief Strategy Officer Ted Durbin - Head of Investor Relations.
Welcome to the Stem, Inc. Third Quarter Conference Call. At this time all participants will be in a listen-only mode. Later we will conduct a question-and-answer session. I would now like to turn the call over to your host, Ted Durbin, Head of Investor Relations. Mr. Durbin, you may begin sir. .
Thank you, Operator. This is Ted Durbin, Head of Investor Relations at Stem, and we welcome you to our third quarter 2022 earnings call. Before we begin, please note that some of the statements we will be making today are forward-looking.
These matters involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. We therefore refer you to our latest 10-K and our other SEC filings. Our comments today also include non-GAAP financial measures.
Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our earnings release. We will be using a slide presentation today. Our earnings release and presentation are on the Investor Relations portion of our website at www.stem.com.
John Carrington, our CEO, and Bill Bush, CFO, will start the call today with prepared remarks. Bob Schaefer, President of AlsoEnergy, and Prakesh Patel, Chief Strategy Officer, will also be available for the question-and-answer portion of the call. And now, I will turn the call over to John..
Our track record of delivering tangible, high value return on investment; fully automated AI to constantly improve optimization and forecasting, which we have highlighted as a significant competitive moat and; and finally, the report highlights our industry leading team that supports the entire value chain, a theme we showcased during Analyst Day.
The Frost and Sullivan report follows on the heels of the Guidehouse report last quarter, where Powertrack was also ranked number one for solar monitoring. This is clearly a powerful combination and one we believed in when we acquired AlsoEnergy.
As we continue to bring Athena and PowerTrack together, we offer customers a powerful combination of Number 1 ranked solutions from a flexible platform that monetizes multiple value streams across customers and assets.
Turning to page seven, here we highlight our results versus some of our key performance indicators, which show the strength and depth of Athena. In late August and early September, California experienced a powerful heat wave, nearly resulting in a power grid collapse.
Energy storage played an important role in stabilizing the grid, and we executed flawlessly to dispatch our assets during these “Flex Alert” days. But beyond supporting the grid, we continue to support our customers to maximize their revenues, minimize their costs and advance their sustainability goals.
These accomplishments in key markets including California and Ontario highlight the strength and diversity of our technology platform for customers, and we expect continued outperformance in coming months and years. Please turn to slide eight.
Next, we want to provide an update on the AlsoEnergy business and trends we are seeing in the broader solar industry, where we served as a market leader in solar asset performance management. First, we continue to observe pressures for solar developers in securing solar panels and advancing their project timelines, particularly within utility scale.
At a high level, certain regulatory actions such as AD/CVD and UFLPA impacted product availability. Bob Schaefer and his team at AE have been nimble despite these headwinds, and as you can see from the charts on the bottom left, we are outperforming the market, both in C&I and utility scale.
We have focused our efforts on the C&I business, which has proven more resilient, but our revenues are still down on a year-over-year basis through the third quarter in both segments. Looking at the chart on the bottom right, this caught everyone by surprise, including the market research firm WoodMacKenzie.
At this time last year WoodMacKenzie was calling for a 13% increase in C&I and utility scale installations in 2022. Based on the updated forecast from September of this year, they are calling for a 47% decrease in 2022. Looking forward to 2023, we are extremely optimistic.
Market analysts expect installations to more than double, and we expect our solar monitoring revenues will rebound sharply next year. This has shown up in the accelerating increases in our pipeline, and from 2024 to 2025 you can see that the Inflation Reduction Act has influenced a structurally higher projected level of installations.
Moving to slide nine. Next, I want to give you an update on our supply chain activity. The procurement team continues to execute and have contracted well into the fourth quarter of 2023 against our backlog. Also in the quarter we welcomed a seasoned leader Renee Leong as VP of Sourcing and Supply Chain.
Renee joins from Engie, where she was responsible for a multi-billion dollar procurement and supply chain organization. We believe there is significant opportunity in optimizing both the supply reliability and cost curve, we are all excited with the leadership she is already bringing to achieve this goal.
Moving to the slide, we are developing an Athena Unit Controller, with the goal of enhancing resilience to our supply chain while providing greater value to our customers. Specifically, the Unit Controller decouples the procurement process for the battery, inverter and balance of plant.
We believe that this strategy will provide significant customer benefits, including improved flexibility of mixing and matching various hardware solutions that are all coordinated and operated by Athena AI and controls.
In particular, we can enable customers to shift configurations based on use case or enable alternative configurations in the event of issues with OEM logistics or pricing. Ultimately, we expect to drive improved margins with additional software revenue at every site.
Our Athena unit controller reinforces our SaaS strategy end-to-end, from the edge to the core of the Athena cloud. Lastly, I want to highlight that the unit controller will be domestically manufactured at our Longmont, Colorado facility.
This is another example of the synergy and integration progress we discussed at the announcement of the acquisition. Moving to slide 10, and to share the great progress we’ve made integrating AlsoEnergy. We introduced a unified customer experience at RE+.
The RE+ conference which served as a launch for our product integration included demos and multiple use cases for the combined platform. The event resulted in a significant increase to our pipeline and we continue to see strong commercial demand as a result of new features and product vision we communicated to our customers and partners.
Our unit controller and related hardware manufacturing processes have been consolidated into the Longmont, Colorado facility, resulting in over 30% savings in COGS, but also a meaningful reduction in facilities expense as we exited a high-cost location in Burlingame, California. Thank you.
And now I will turn the call over to Bill Bush, our Chief Financial Officer.
Thank you, John. Starting on page 12 with our results for the third quarter 2022. But before I begin, as I’ve noted in our prior calls, recall that we closed the AlsoEnergy transaction on February 1 of this year and that will impact the comparability to last year’s results.
As John mentioned, we reported record revenue of $100 million, which is a 150% increase versus the $40 million in third quarter 2021. We also have exceeded last year’s total revenue of $127 million by 64% through the third quarter. Year-to-date revenue was $208 million, an increase of 178% on a year-over-year basis.
The quarterly revenue performance surpassed the Q2, 2022 performance of $67 million or an increase of 49%. Most of the growth came from hardware sales on FTM and BTM partner storage projects, and about $17 million from the addition of AlsoEnergy.
We also recognized approximately $14 million of high margin software and services revenue, representing 14% of total revenue for the quarter. Our GAAP gross margin was $9.1 million or 9%, up from 8% in the same quarter last year.
Non- GAAP gross margin was $12.4 million, up from $5.2 million or a 139% increase in the third quarter last year due to higher revenues and an increased mix of software and services revenue. This is the third straight quarter of positive GAAP gross margin, highlighted by our growing base of our software and services offerings.
On a sequential basis, this represents a 16% increase in GAAP gross margin, reflecting the strength of our commercial offerings. On a percentage basis, non-GAAP gross margin was 13% in the quarter, in line with 13% last year. Net loss was $34 million versus a net income of $116 million in the same quarter last year.
That swing is almost completely the result of a large non-cash gain in the third quarter of 2021 from the then outstanding common stock warrants. We retired all of those warrants last year, and we do not expect significant gains from warrants in the future.
And lastly, adjusted EBITDA was a negative $13 million versus a negative $7 million in the same quarter last year. Adjusted EBITDA was negatively impacted by higher operating costs from additional hiring, as we continue to build out our teams and advance our technology roadmap and operational breadth to take advantage of market opportunities.
Third quarter bookings were $223 million, up more than 2x versus bookings in the same quarter last year. This was the second highest bookings quarter in the company history and $600 million of bookings for the nine months ended September 30 is 150% ahead of what we booked in all of 2021.
Moving from our financial results to our operating metrics on slide 13, our backlog more than doubled year-over-year from $312 million in third quarter of 2021 to $817 million in the third quarter of 2022. The backlog increased 12% on a sequential basis from the period ended June 30, 2022.
The largest driver of the backlog increase was the $223 million of new bookings in the quarter, offset by revenue recognized during the quarter, some project cancellations, and contract amendments. We believe the backlog gives us excellent visibility in the short and medium term, that is for the fourth quarter of 2022 and into 2023.
With our expected Q4 bookings and commercial momentum, we see a path to exceed $1 billion in backlog by year end, giving us significant visibility into 2023 revenue and beyond. Contracted Annual Recurring Revenue or CARR ended the quarter at $61.0 million, up 5% sequentially and 42% up since December 31, 2021.
This software metric highlights the long-term high margin revenues we expect the business to generate. Our contracted AUM on the storage side grew from 1.4 gigawatt hours in the third quarter 2021 to 2.4 gigawatt hours in the third quarter of 2022.
That’s a 71% year-over-year increase, again, driven by our strong execution on the sales and operations side of the business. Our operating AUM on the solar asset performance monitoring side ended the quarter at 25 gigawatts, down 7 gigawatts from the prior quarter.
During the quarter we conducted a review to migrate or terminate customers from legacy software platforms that were unprofitable which caused the sequential decline. I will discuss more on this in the next slide. We ended the quarter with $294 million in cash and cash equivalents on the balance sheet.
In the last few quarters we have strategically deployed some cash to secure storage hardware for our customers and drive greater adoption of high margin recurring revenue. This cash will be recycled back to the balance sheet when the systems are delivered, but the net effect has been a use of cash.
We are evaluating some non-dilutive financing tools and structures to allow us to continue to deliver energy storage systems for our customers without relying as much on the cash on our balance sheet.
In addition, we continue to evaluate inorganic growth opportunities which would meet our strategic and financial framework and would, if successful, finance those activities in line with our long-term financial targets, which focus on maximizing cash flow generation.
Turning to slide 14, where I’ll provide some more detail on our solar AUM metric and the implications to the business. First, a quick history. As far back as 2012, but really beginning in 2017 and 2018, AlsoEnergy acquired multiple solar asset monitoring software platforms and the customers that came with them.
In the last few years AlsoEnergy fully consolidated several of those platforms, and initiated that process with others while migrating customers onto the core PowerTrack platform. Today we have two legacy platforms, what we would call “non-core,” where we have not fully migrated all of those customers onto PowerTrack.
You can see from the chart on the bottom left side that the customers on these non-core platforms only accounted for about 5% of the total AlsoEnergy ARR, which itself is a subset of our total corporate ARR.
But those non-core software applications accounted for a disproportionate amount of our solar monitoring AUM, as you can see in the chart in the middle. This quarter we conducted a review of those two legacy systems, and we decided to phase them both out and are working to migrate customers over to PowerTrack.
Some customers are choosing to migrate over, but others terminated their contracts with us, which drove the large drop in AUM versus the second quarter. Today we estimate we have about 3.5 gigawatts of AUM that are still on these legacy systems and expect about half of that eventually will move to Powertrack.
I want to emphasize that terminating these platforms will be accretive to gross margin despite the potential loss of ARR. As part of this process, we also conducted a review of our billings relative to our AUM, and decided to remove customers in Russia and the Ukraine who for obvious reasons have not been paying their bills in recent months.
I want to emphasize that we do not expect these terminations to have a material effect on our recurring revenue. In effect, we are shutting down platforms that have had a much lower ASP per megawatt and that have a negative contribution margin. You can see from the bottom right chart that this is not just a financial decision.
These systems have many bespoke features which are hard to maintain, and have some security challenges associated with them. We expect to retain a significant portion of the customers that are on these non-core systems and will want to come onto PowerTrack. These customers will gain the benefit of a more robust and secure system.
Lastly, it’s important to recognize that this change in AUM does not have a material impact on the $6 billion retrofit opportunity that we’ve highlighted in our Investor & Analyst Day in September.
That retrofit analysis looked at core PowerTrack AUM, which was principally focused on high impact states like California, Massachusetts and New York, and so should have no material impact on our ability to cross-sell storage into the AlsoEnergy solar asset base.
Bottom line, AUM dropped because we are shutting down some legacy unprofitable platforms. We do not expect this to have a material impact on our recurring revenue, and in fact shutting them down should increase our contribution margins, which will help us to drive for our EBITDA positive goals.
As we emphasized in our Analyst Day, when given the choice between optimizing the presentation of operating metrics and increasing free cash flow, we will always choose the latter.
Finally, on slide 15, we are reaffirming our guidance for revenue in the range of $350 million to $425 million for the full-year, non- GAAP gross margin of 15% to 20%, and adjusted EBITDA in the range of negative $20 million to negative $60 million. For revenue, we are confirming the full year revenue guidance.
Topline for the business continues to be lumpy based on the increased importance of the FTM business and its large hardware component. For Non-GAAP gross margin, we expect to trend towards the bottom end of the range. This is really a function of the higher mix of storage hardware versus software and services this year.
The biggest driver of this mix shift is the weakness in the solar monitoring business that John’s discussed. AlsoEnergy is outperforming the industry. We expected a greater contribution from that high margin software and services business than we are seeing this year.
As we have seen in prior periods where the business was slowed by regulatory impacts, we are confident that the solar business will bounce back next year. In fact, while projects pushed, we have not seen any material cancellations and our pipeline continues to grow significantly.
Despite that margin profile, we expect our adjusted EBITDA to come in closer to the midpoint of our range. That’s driven by cost control, and we have been prudent in our headcount additions and shifted our hiring to lower cost locations.
On bookings, we are lifting the bottom end of the range to $850 million, but keeping the top end at $950 million, as our sales force continues to exceed expectations. Lastly, we are maintaining our CARR guidance of $65 million to $85 million. With that, let me turn the call back over to John for some closing remarks..
Thanks Bill and turning to slide 16. We have strong confidence in our business performance and reaffirm our full year guidance. Despite the challenging macroeconomic backdrop, customers view energy and sustainability as strategic imperatives.
As their energy bills continue to rise, we are experiencing significant growing interest in our energy storage and solar monitoring solutions, consistent with a focus on achieving budgetary and ESG targets.
Looking ahead into the fourth quarter and into 2023, we continue to see an improvement in pricing power as reflected in the increasing gross margin profile of our contracted backlogs. Separately, our strategic supply chain activity positions us to serve as a critical partner to corporates and renewable project developers.
And most importantly, we continue to drive commissioning of our deployed systems as seen in accelerating high margin services revenue. As we close out the year and into the coming years, we will be guided by our focus on maximizing future cash flows.
On Page 17, to wrap-up, we are excited by our strong commercial and operating momentum heading into the second half of 2022, with record revenue above the high end of our guidance and record bookings of $600 million year-to-date representing a 150% year-over-year growth.
We continue to be recognized by our customers with validation by third party research firms, as a market leader across both the energy storage and solar asset performance management.
In the quarter Frost and Sullivan highlighted the strength of our technology platform ranking us Number 1 in Digital Platforms for Renewable Energy and Battery Storage Optimization.
We are pursuing a strategy to enhance resiliency in the supply chain for the benefit of our customers with the introduction of the unit controller strategy, and our teams are driving operational rigor in activating systems to accelerate high margin services revenue. We introduced a unified platform integrating Athena and Powertrack in the quarter.
And we continue to advance the vision of One Team as we consolidate manufacturing and drive a focus on operating leverage through expanding the AlsoEnergy and Stem organization in India.
In summary, we are optimistic on the trajectory of the company in achieving EBITDA positive in the second half of next year and we are within striking distance of executing on $1 billion of bookings volume this year. In closing, we are proud of the platform we have built over the last 12 years, which wouldn’t be possible without our people.
Stem and AlsoEnergy have built the leading clean energy intelligence platform through the innovation, collaboration and rigor that come from our talented employees. We are attracting the best talent with deep domain expertise, critical as we facilitate the clean energy transition.
We are reiterating our guidance and very well positioned for 2023, a year we fully expect solar to rebound driving further combined strength with the Powertrack and Athena unified software solutions. With that, let’s open the line for questions please..
[Operator Instructions] And our first question comes from Brian Lee, your line is open..
Hey guys! Good afternoon. Thanks for taking the questions. I guess starting off, you know the line of sight exit 2022 with $1 billion of backlog, that's you know super encouraging and I appreciate the forward looking data point there.
Can you give us a bit more around kind of expectations from mix of that, you know hardware, software, FTM, BTM and then you know kind of what the implications would mean for kind of the margin profile across that backlog. .
Hey! Thanks Brian for that question, I appreciate it. So I think that in general we are starting to see BTM bookings become a more predominant piece of the backlog though still smaller. I mean, we're still definitely weighted towards FTM, which of course has those lower hardware margins associated with it.
The other thing that's happening that we're seeing in general though is that the margin and this is where Allan's team has really been super successful, is they've been able to drive the gross margin of those bookings higher than what we’ve seen in the past.
So what that would mean is you know better gross margins on the software components, better gross margins on the hardware. So of course though as I mentioned, FTM is still in general a low gross margin provider for us and probably will be for the foreseeable future. .
Okay, fair enough. And then just my second question, you know it's related to the backlog here. You know if I look last year or coming into this year, you had I think about $450 million of contracted backlog. You know this year you're talking about basically double, more than double of that and turning into the New Year.
How should we think about backlog conversion, because you know clearly you converted a lot of last years, you know the 450 and then you got a revenue guidance which you're reiterating here, which will put you kind of in that high threes, low fours if you execute.
What is that $1 billion of backlog exiting 2022? You know kind of what sort of context should we use in terms of conversion or how should we be thinking about your ability to translate that over the next 12 months. .
Yeah, so I think first I'd say is that you know in February we're going to give ’23 guidance, so we'll be able to provide a lot more color, you know at that point in time. But in general, one of the things – and I think we've talked about this in the past is that the implementation dates that the systems is extending.
So you know I think we've said you know in the past years that you know BTM system was anywhere from six to nine months. That's definitely getting closer to a year these days. And FTM systems which were as fast as a year in the past now are much closer to 18 months and in some cases even longer.
So the benefit of having that big backlog of course is that you get a lot of visibility into ’23 and into ’24, and so that's really how we're able to predict where we think we're going to be.
It's definitely buttressing our ability to create I think what we think is a defensible and executable business model that we present to you guys, and so we'll have a lot more on that in the February time frame. .
All right, okay. I'll follow up offline. Thanks guys..
Thanks Brian..
And our next question comes from David Peters, your line is open..
Yeah, hey! Good afternoon, everybody. Just on the pipeline, 29% gross sequentially. You know that’s pretty substantial and I guess evidence of what IRA means for you guys. Can you first just give a breakdown of kind of how that stands, batteries for solar monitoring and then just confidence in converting these into contract to customers, right.
Do you see the historical conversion rate changing at all versus you know what you have experienced previously, just given you know the sheer size of the pipeline is so much bigger at this point. .
You know thanks David. I'll start and Bill can jump in. Look, your right, the pipeline is significantly increased. We see that being driven by the IRA certainly, as well as more markets opening, and you know you rightfully highlighted that the growth has been significant. We're seeing really across the board in the U.S.
ERCOT, Texas continues to be strong and as alluded to in the solar site which you mentioned, I think the total year 2022 two has been impacted by some of the things that Bill noted in the remarks around WIGER [ph] and other situations related to the regulatory side. We look for a strong next year on that front as Bill mentioned as well.
We'll circle back on that in our next February call and we look forward to the 2023 side of the business.
Bill, do you want to add anything else on the pipeline side?.
Yeah, I mean I think one of the things that we are definitely seeing David you alluded to is pipeline growth off the IRA. And so that definitely, and I think in the Analyst Day we talked about you know a much higher level of calls and conversations.
You know we pointed to our ability to cross sell into the AlsoEnergy pipeline, and of course as we mentioned with prepared remarks, the reduction in the AUM does not impact that, but we still expect to be able to sell a significant amount of storage into that 41,000 primarily seen on a customer base that Bob and his team.
You know but in general I would say at a high level, yeah it's much like we've talked about in the backlog, the pipeline is still weighted towards the FTM side, 75, 25 FTM and BTM, and it’s generally coming out of the states where we're doing a lot of work, New York, Massachusetts, California, of course Texas, and then with some green shoots in other places that U.S.
Solar has been successful and in large part where Bob and the team have built a pretty impressive AUM base. .
Okay. The second question is just on the gross margin guidance for ‘22. I understand you know at low end, I think mostly just some project delays on the AlsoEnergy side of the house. But I just want to confirm, are you expecting to see any kind of knock on effect into ’23 from the FTM hardware shift or anything like that.
I just kind of want to clarify what the expectation of this is for next year if any. .
No, I think actually the knock-on effect is going to happen on the other side of this. We really expect a big pop out of the solar side of the business. I mean I think that's been – that was displayed in the slides. I think we actually talked about that in calls in the past where we think solar has been, it has been really slow.
I mean I think it’s just – that's just the way the market has worked out, and we think that there's going to be a really interesting snapback and we're well positioned to take advantage of it, and that really you know is positive to lead to us, because it is all in the software and services business.
I mean, if you look at the business model that Bob and the team built, I mean you're looking at a 60% plus gross margin or contribution margin and so it doesn't take a lot for that to have impact. I mean of course this year it's hurt us the wrong way, I mean that's pretty obvious.
But next year we're really thinking that that's going to pop in our favor. So we're excited for ‘23 from that standpoint. We've got a growing base of CAAR and that means that there's going to be more software that we're going to be i.e., systems that we're going to be operating and generating really high gross margin product of that.
So I think ’23 is going to be well positioned, all consistent with what we talked about in September, which was a high CAGR in the software and services side. .
Great! Thank you. .
Thank you. .
And we have a question from Maheep Mandloi. Your line is open. .
Hi There! This is David Benjamin in for Maheep. You talked about that in our services CAGR.
Can you talk a little bit about – give some color around how you see that going into 2023?.
Yeah, thanks for the question. So you know in between with the comments I just made and certainly those that we made in New York, I mean we're really bullish on what software and service is going to be able to do for this business in ’23. The business model is predicated upon us being able to deliver those services.
There are super high margin to generate a lot of cash flow. When you think about what we did from the AUM standpoint, we took that number down, but where actually it's going to – it's a cash flow driven reason.
And so I think one of the things that we've done is the business in general and you can see that through the operating leverage, as well as the operating expense leverage. We're super focused on where we are from a cost standpoint and from where we are from a margin standpoint.
And so as we look at where we're going to be in ’23, we're really focused on that 65% to 85% CAGR for the software and services business. That’s what's going to drive the company to the position where we think that we're going to be, which is cash flow positive in the second half of ’23..
Great! Hey, this is Maheep here. Sorry to just in here and I apologize I’m between calls, I might have missed this, but just curious on the battery procurement side. What you're seeing for ’23 and ’24. I know the past few months kind of talked about competition from the EV industry for vendors, but just curious on the latest thoughts on that. Thanks. .
Yeah, thanks Maheep. Good to hear from you. I’d say that on the supply piece, we're contracted well into the fourth quarter of next year and I would say some projects, even as 2024, particularly around the BTM supply, we are going into 2024.
That's an area we're excited to have supply locked in, because we do as Bill mentioned a moment ago, do see some nice growth around BTM.
I think one of the things that we're watching closely is just a logistics piece now as the fourth quarter, it’s a lot of activity, a lot of export and import, so just from a port standpoint we're monitoring that and obviously doing everything we can to make sure our product is expedited and gets here on the timelines that we expect them to. .
Got it, so we have visibility through Q4 of ’23 now?.
Yes, on the supply. .
Correct, that’s right, yes. Sorry. .
Yeah, I mean I think one of the things that I mention Maheep in New York was that, you know we are definitely – you know if you asked us that question six, maybe 12 months ago we would have said, yeah, you know we're relatively short, you know we're buying less than a year out. We're now buying 18 months and more from an expectation of installation.
So it's definitely – you know which is one of the things we highlighted in terms of the balance sheet, that we're using the balance sheet to be able to secure supply. We think that's commercially differentiating for ourselves and a benefit to our customers, and so we're definitely continuing to develop relationships with suppliers.
As John mentioned, you know the unit controller, that's really part of that as well where we're doing other things rather than buying just batteries or ER, energy storage systems, and so I think it's really, it's an opportunity for us to expand what we're doing and make sure that we've got enough product at the right time in the right orientation for our customers.
.
Got it. No, I appreciate the color. Thank you. .
[Operator Instructions]. And we have a question from, Brett Castelli. Your line is open..
Yeah, hi! Thank you. Maybe just sticking on that same theme, Bill I think you mentioned in the prepared remarks the potential use of financing tools to procure hardware.
Can you elaborate on what maybe your contemplating there?.
Sure. So right now our financing tools are somewhat limited, you know generally cash. You know then of course we're working terms with our primary suppliers.
One of the things that we've been working on is bringing in some non-dilutive structures, you know more than likely a revolver of sorts that we’re able to increase the amount of product that we're able to secure for customers.
So what we're trying to use is, you know leverage the balance sheet into as a debt structure, revolving capital facility, something like that that would allow us to secure a higher level of supply than what we have today. .
Got it, okay. And then my follow-up is just, can you touch on working capital dynamics as the business maybe shifts to more software only deals. It seems like that could be a pretty material tailwind for working capital, but maybe when do you.
Is that correct? And then when do you expect to see that materialize?.
I think your right, but I would also say that one of the things that’s going to be true about this business for a while is we're selling, we are going to be selling hardware, and hardware in and of itself consumes working capital, whether – you know even with the working capital facility we're going to have to put some cash out for that.
So we would expect a declining amount of capital for the acquisition of hardware, but we are pretty much in any model I mean, and I think we provided some guidance and split between software and services and hardware growth.
We're still expecting to see hardware growth in the business, which means that you're going to need some sort of support to be able to do that. I mean, you know even with the expected declines in price, you're still talking about a pretty darn big number.
And so you know I think what we're going to continue to do is look for alternatives than what we are doing today and make sure that our balance sheet has the ability to be able to support our customers and make sure that as I mentioned, that product share is up when they need it. .
Got it. Thanks Bill. .
Of course. .
And we have no further questions in queue. .
Okay. Then in closing I want to thank everyone for joining us on our third quarter 2022 earnings call. We look forward to speaking with you during our 4Q call in February 2023. In addition to full year and fourth quarter results we’ll product guidance as mentioned here today for the full year 2023. Thanks again everyone. .
That concludes today's conference call.
Thank you for joining and have a pleasant day!.