Evolv Technologies Holdings, Inc. Q2 FY2023 earnings call

Key Points

• Strong Q2 results: Revenue, ARR, and RPO all grew. Over 70 new customers were welcomed, and 600 new multiyear subscriptions of Evolv Express were activated, with nearly 3,400 units deployed.
• Growth trends: Broad adoption in education (60% of business, +50% sequential growth), health care (+50% sequential), and professional sports. 75% of unit bookings in Q2 were via the pure subscription model.
• Product innovation: Evolv Express 6.0 released, enhancing detection of smaller bladed weapons and making system reconfiguration easier.
• Partnerships: New partnership with Ricoh for service support, and expanded partnership with Columbia Technology for hardware distribution, making it easier for customers to procure and deploy Evolv Express.

In the second quarter, Evolv Technologies reported revenue of $19.8 million, up 119% year-over-year. The education market, representing about 60% of the business in Q2, grew nearly 50% sequentially. Annual recurring revenue (ARR) grew from $42 million at the end of Q1 to $54 million at the end of Q2, a 30% sequential and 160% year-over-year increase. Remaining performance obligation (RPO) as of June 30, 2023, was a record $198.3 million, up 145% year-over-year. Adjusted gross margin was 38% in Q2, reflecting accelerated adoption of the pure subscription model.

Forward-Looking Statements

• Revenue for 2023 revised to $70 million to $75 million (previously $60 million to $65 million).
• ARR for 2023 revised to $70 million to $72 million (previously $67 million to $71 million).
• Gross margin outlook revised to 38% to 42% for 2023 (previously 35% to 40%).
• Adjusted EBITDA outlook: -$52 million to -$56 million (previously -$53 million to -$58%).
• Expect to reach cash breakeven in the first half of 2025 with $75 million to $100 million in net cash.

Risks

• Forward-looking statements subject to material risks, uncertainties, and assumptions beyond control, as outlined in SEC filings. Impact of the expanded partnership with Columbia Technology on ARR growth.

Q: Any updates on the industrial workplace opportunity?

A: Peter George mentioned they are winning industrial warehouse deals, which could be a significant part of the product mix next year, potentially rivaling the education market in size.

Q: How is the pipeline looking relative to goals?

A: Mark Donohue stated the pipeline is robust with 3 or 4x quality pipeline, and they added 10 new salespeople to develop pipeline further.

Q: What's the magnitude of the ARR headwind from the CT transition?

A: Mark Donohue said the ARR headwind is estimated to be in the $3 million to $5 million range, with Columbia Tech model contributing about 25% to 35% of business with lower ARR per transaction compared to pure subscription.