Evolv Technologies Holdings, Inc. Q4 FY2023 earnings call

• Peter George highlighted 2023 results including revenue growth, new customer acquisition (nearly 300 new customers in 2023), ARR growth to $75 million, and deployments of over 2,200 Evolv Express units. Key product innovations like Evolv Visual Gun Detection, Express 6.0 and 7.0 were mentioned, along with partnerships with ASM, Columbia Tech, and others. Focus on vertical markets such as education (~45% of business in 2023), healthcare (serving ~300 hospital buildings), and professional sports was discussed.
• Mark Donohue reviewed financial results, noting adjusted gross margin, operating expenses, balance sheet details, expanded partnership with Columbia Tech (now a distributor), and provided 2024 guidance including revenue expectations, ARR targets, and adjusted EBITDA outlook.

In 2023, Evolv Technologies reported total revenue of $80.4 million, up 46% year-over-year. Annual recurring revenue (ARR) grew from $34 million at the end of 2022 to $75 million at the end of 2023, a 120% increase. Revenue-generating subscriptions increased to 4,505 by the end of 2023. The adjusted gross margin was 45% for the full year 2023. For 2024, the company expects adjusted gross margins of about 60%.

• Expect 2024 revenue of approximately $115 million.
• Aim to exit 2024 with ARR between $108 million to $112 million.
• Project adjusted gross margins of about 60% in 2024.
• Expect adjusted EBITDA losses to be reduced by at least 40% in 2024.
• Anticipate reaching positive adjusted EBITDA in the first half of 2025 with cash and marketable securities exceeding $75 million.

• Regulatory risks related to inquiries from the FTC and SEC. While no immediate significant impact on demand, supply chain or customer conversations could be affected, but details are limited due to ongoing regulatory processes.

Q: Can you talk a little bit about the diligence that your customers do when they engage you?

A: Our customers are experienced security professionals who often do POCs and their own testing. The sales cycle is 60 to 90 days depending on the customer.

Q: When do you think the next kind of hardware system will be out? What's the cost change and what kind of license would you get then?

A: By the middle of the year, starting in April, the newly designed system will be built. It's ~95% same functionality with some enhancements, cost reduced by about a third, and licenses from CT relationship may be affected with potential savings pushed to customers in certain verticals.

Q: Do you think you will potentially hire a leader to run the industrial warehouse category this year?

A: We do see industrial warehouses as a big emerging vertical and will likely hire someone knowledgeable about it, though not a big contributor in 2024 but for 2025 and beyond.

Q: Can you comment on the linearity of units throughout the year by quarter?

A: Q3 is typically a strong quarter due to education customers placing orders before school starts. Q4 has fewer deployment days due to holidays. Second half of 2024 is expected to be stronger than the first half.

Q: Have you seen any notable impact in any way to demand, customer conversations, pipeline, or would you kind of qualify that as maybe too early to tell regarding FTC and SEC stuff?

A: It's early on the SEC inquiry with no dramatic impact on commercial side. FTC inquiry was addressed by early fall with no major customer impact yet.

Q: Both the education and the healthcare side, if there's any danger of budgets weakening as maybe COVID related funding and grants dry up?

A: On education, ESSER funding dries up in Sept 2024, but schools are working with other funding sources. Healthcare has ongoing need with 70% of workplace violence, so no major budget concern.

Q: With your go-to-market partners, curious to see if you're seeing your relationship with your partners changing and that they are perhaps dedicating more people, more resources to the Evolv product line?

A: It's early days in this new category, but selecting partners that understand the story and can integrate with customers is key, with potential for more resources as the market develops