Evolv Technologies Holdings, Inc. Q1 FY2024 earnings call

• Q1 2024 revenue was $21.7M, up 17% YOY, with reoccurring revenue at 89%.
• ARR was $83M, up 96% YOY. Adjusted gross margin was 61% in Q1.
• Regulatory updates: Working with FTC and SEC, sales cycles lengthened due to regulatory overhang and media coverage.
• Business trends: Welcomed over 50 new customers, served ~750 customers across 10 vertical markets. Activated 377 new multiyear subscriptions of Evolv Express (excluding rentals).
• New hires: Bought on board senior sales and marketing professionals, including new CCO, CMO, and senior channel leader to improve sales execution.
• Product updates: Strong customer interest in Evolv Visual Gun Detect. R&D working on new digital and physical products. Expect major new product announcement by end of year.
• Channel partners: Over 70% of sales activity came via channel partners in Q1. Strong activity with Motorola, Johnson Controls, etc.
• Renewals: Over 90% of units renewed in Q1 2024. 49% of booked ARR in Q1 was from existing customers.
• End markets: Education saw 15 new customers, daily school visitor screenings surged. Healthcare had over a dozen new customers, daily visitor screenings tripled. Professional sports had recent wins. Industrial warehouse vertical is just beginning.
• Competitive landscape: Leadership position in AI-based weapons detection, solidified by extensive customer base and deployments. Seeing revisitation of previously lost opportunities.

Revenue in the first quarter was $21.7 million, up 17% year-over-year. Annual recurring revenue (ARR) grew 10% sequentially and 96% year-over-year to $83 million at the end of Q1 2024. Adjusted gross margin expanded to 61% in Q1 compared to 26% in Q1 of the previous year. Recurring revenue was 89% in Q1 2024 compared to about 50% in Q1 of the previous year. Remaining performance obligation (RPO) as of March 31, 2024, was $254 million, up 57% year-over-year and 6% sequentially.

• Revised full year revenues to ~$100M (down from previous $115M), reflecting 25% YOY growth.
• Now modeling ARR of ~$100M by end of 2024 (down from previous $108M-$112M), reflecting 33% YOY growth.
• Reaffirmed adjusted full year gross margin of about 60%.
• Expect improvements in full year adjusted EBITDA of at least 40% in 2024 and positive adjusted EBITDA in the first half of 2025.

• Regulatory overhang has lengthened sales cycles. Some deals delayed due to customers' incremental due diligence related to FTC/SEC inquiries and media coverage. This makes near-term forecasting challenging due to uncertain deal slippage.

Q: How many salespeople do you have hired this year and total number of salespeople?

A: We have about 35 quota-carrying sales executives, relatively unchanged since end of last year.

Q: Color on how the industrial warehouse category is?

A: Just beginning the industrial warehouse vertical orientation, confident of making good progress this year and next.

Q: Full year guidance, confidence on installs being low point?

A: Feel at low point for Q1, starting to see deals tick up in April, win rates still 79% for invited deals, sales cycle extended to 5 months from 3 months YOY.

Q: Hospital segment sales cycles, path to adjusted EBITDA breakeven?

A: Sales cycles across board, longer in education, health care sales cycle still ~5 months, won close to 100% of healthcare deals, path to adjusted EBITDA breakeven in H1 2025 with cash balance in $65M-$75M range.

Q: Pricing environment in education and healthcare, included in outlook?

A: Saw competitive pricing in some deals, amenable to pricing in volume-based education deals, pricing maintained in other verticals due to value provided. Outlook reflects pricing model for year.