Evolv Technologies Holdings, Inc. Q3 FY2023 earnings call

• Record revenue of $20.2 million in Q3 with recurring revenue up 131% YOY.
• ARR grew from $54M at end of Q2 to $66M at end of Q3, with 20% sequential growth.
• Launched new products like Evolv Extend and Express 7.0; Evolv Extend detects brandished guns, Express 7.0 has upgraded algorithms and tablet software.
• Accelerated adoption of distributor model, with ~30% of unit bookings in Q3 via this model, contributing to gross margin expansion.
• Welcomed Jay Muelhoefer as Chief Commercial Officer to oversee sales, marketing, etc.
• Education market added nearly two dozen new customers; health care business saw 50%+ sequential growth; professional sports business was strongest ever, partnering with over 40 teams/stadiums.

In the third quarter, Evolv Technologies achieved record revenue of $20.2 million. Recurring revenue was $14.3 million, up 131% year-over-year. Annual recurring revenue (ARR) grew from $54 million at the end of Q2 to $66 million at the end of Q3, reflecting a 20% sequential growth and nearly 130% year-over-year growth. The education market represented about 40% of the business in the third quarter. The company activated over 600 new multi-year subscriptions of Evolv Express and has surpassed 4,000 units deployed, with expectations to surpass 7,000 units in 2024 and 12,000 units in 2025.

• Reaffirmed 2023 outlook: revenue $75-77M, ARR $73-75M, adjusted gross margin 43-45%, adjusted EBITDA -50 to -53M, cash at high end of $110-120M.
• 2024 guidance: revenue ~$115M (50% YOY growth), ARR ~$108-112M (50% YOY growth), adjusted gross margin ~60%, aiming for positive adjusted EBITDA in H1 2025 with cash $75-100M.

• Mention of FTC investigation around marketing claims, though Peter George stated it hasn't impacted business yet, but it's a material risk factor.

Q: Mike Latimore asked about long-term growth rate context and mix of purchase subscription.

A: Mark Donohue responded on transition to distribution model, 2024 growth at least 50%, and moving towards 50:50 mix of pure subscription and distribution.

Q: Hugh Cunningham asked about product revenue and buyer experience.

A: Mark Donohue talked about product revenue components and reduction, Peter George discussed verticalization of sales and buyer experience with security experts testing the product.

Q: Chad Bennett asked about Express 2.0 and demand.

A: Mark Donohue said Express 2.0 expected to ship by end of Q2 2024, cost-down 30-35%, Peter George emphasized software improvements benefit all sensor platforms; Peter George also stated no abatement in demand due to secular tailwinds of gun violence.

Q: Brett Knoblauch asked about deployment guidance and FTC investigation.

A: Peter George said 2024 deployment expected to be over 7,000 units; Mark Donohue discussed ARR trend with distribution model and that FTC inquiry is about marketing, not technology, and hasn't impacted business.