Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) Q3 2023 Earnings Call Transcript

Evolv Technologies Holdings, Inc. (NASDAQ:EVLV) Q3 2023 Earnings Call Transcript November 11, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Evolv Technologies Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Brian Norris, Senior Vice President for Finance & Investor Relations for Evolv Technologies. Mr. Norris, please go ahead.

Brian Norris: Thank you, Eric. And good afternoon, everyone, and welcome to today’s 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 third quarter results and our business outlook. This press release is available on the IR section of our website. During today’s call, we will make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities 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 in 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 31, 2022 filed with the SEC on March 24, 2023 and as updated in our other documents filed with or furnished to the SEC from time to time. The forward-looking statements made today represent our views as of November 9, 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 maybe required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Please note that 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. Reconciliations 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. We will 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 is helpful to investors in understanding the progress we are making as a business.

Investors should note that today we are providing additional transparency to investors by presenting hardware license revenue on the face of our income statement. This is the new revenue stream that we receive upfront from Columbia Tech when our customers elect to purchase hardware under our new distributor model. We once again have an active IR outreach schedule planned for the fourth quarter highlighted by the UBS Credit Suisse Technology Conference, the Craig-Hallum Conference and the Northland Capital AI conference. For more information about these conferences or any of our IR outreach plans, please contact me at bnorris@evolvtechnology.com. With that, I’ll turn the call over to Peter. Peter?

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Q&A Session

Peter George: Thanks, Brian. And thanks, everybody, for joining us today. I’m going to spend a few minutes on our results for the third quarter, discuss the key trends we believe are driving those results and then spend a few minutes updating you on the progress we’re making with several other important initiatives across the business. Mark will then walk through our financial results and our outlook for the remainder of the year, as well as provide some insights into how we’re thinking about next year. During the third quarter, we delivered strong results across every key measure of the business, including revenue, ARR, RPO, subscriptions and gross margin. Revenue in the third quarter was a record $20.2 million with reccurring revenue of $14.3 million, up 131% year-over-year.

Our growth continues to reflect strong new customer acquisition activity and an overall growth in the number of active subscriptions. We activated over 600 new multi-year subscriptions of Evolv Express in the third quarter and have now surpassed 4,000 units deployed. We expect to surpass 7,000 units deployed in 2024 and 12,000 units deployed in 2025. We remain focused on reaching 100,000 units deployed over the next decade. We welcomed 70 new customers in the third quarter including such iconic venues as the Nashville Symphony Center, the Philadelphia Zoo, the TGL Golf Arena, The Plaza Live, the Broadacres Open Air Marketplace, The Oneida Casinos and the iconic Red Rocks Amphitheatre in Colorado. We continue to see accelerated visitor security screening activity.

In fact we screened over 200 million visitors in the third quarter alone, more than double our screening activity compared to a year-ago period. We are now averaging over 2.2 million visitors screened every day, up from 900,000 visitors in the second quarter of last year. We have officially surpassed the TSA in terms of average daily visitors screened. Furthermore, I’m pleased to report that we have just surpassed 1 billion visitors screened since the launch of Evolv Express. We’re not aware of any other company in the world that is screening more people every day than Evolv Technologies. That new screening data becomes part of our unique screening data lake that helps our systems become smarter over time. This continues to extend our competitive advantage in the marketplace.

We grew ARR from $54 million at the end of Q2 to $66 million at the end of Q3, reflecting growth of over 20% sequentially and nearly 130% year-over-year again fueled by increased subscriptions, strong new customer adoption and the accelerating shift to recurring revenue. Tonight, we are reaffirming the upwardly revised outlook for 2023 we issued just four weeks ago. Specifically, we remain on pace to deliver our ARR growth of at least 115% in 2023. While we’re still in the planning stages for next year, our preliminary models are focused on delivering another very strong year in 2024 with expected ARR growth of about 50%. That would drive us to well over $100 million in ARR in 2024 with gross margins of about 60% and accelerating leverage from our investments.

We believe this would put us in an excellent position to reach positive adjusted EBITDA in the first half of 2025 without the need of any additional capital. There are several drivers for our industry-leading growth, most importantly the pressing need for improved security. Every day we all see the reports of escalating gun violence in the very places that should be free of firearms; schools, hospitals, warehouses, stadiums and places of worship; but it’s in these very same places where we expect yet another year of tragic gun violence. In fact in 2023, we’ve had 597 mass shootings so far this year including the recent tragedy in Lewiston, Maine, just three hours north of us here in Boston, which took the lives of 18 innocent people and wounded many more.

To mitigate the risk of mass casualty incidents, our customers are increasingly turning to technology to help. Evolv Express leverages robust sensor technology, advanced AI-driven algorithms, cloud connected connectivity and extensive data analytics. We continue to see broad adoption of our solutions with particularly strong end market demand in education, health care and professional sports. The education market represented about 40% of our business in the third quarter. We added nearly two dozen new education customers in the third quarter, including the Wilkinsburg School District in Pennsylvania, the Rochester Institute of Technology, the Inwood Academy for leadership in New York City, The People for People Charter School in Philadelphia and the Muskegon Public Schools in Michigan.