Evolv Technologies Holdings, Inc.

Good afternoon and welcome to the Evolve Technology Fourth Quarter Earnings Results Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. We ask participants to limit themselves to one question and one follow-up question. As a reminder, ladies and gentlemen, this conference is being recorded. I would now like to introduce your host for today's call, Brian Norris, Vice President of Investor Relations for Evolve Technology. Please go ahead, sir.

Thank you, Alicia, and good afternoon, everyone, and welcome to the call. I'm joined here today by Peter George, our Chief Executive Officer, and Mario Ramos, our Chief Financial Officer and Chief Risk Officer. This afternoon, after the market closed, we issued a press release announcing our fourth quarter results and our business outlook for 2022. This press release is available on major news outlets as well as on the IR section of our website. Please note that during this afternoon's call, we will be referring to an accompanying investor presentation, which can also be found on our investor relations website. As highlighted on slide two of today's presentation, during today's call, we will make forward-looking states within the meaning of Section 27A of the Securities Act of 1933, 21E of the Securities Exchange Act of 1934, and the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 that relate to our current expectations and views of future events. 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 those forward-looking statements as a result of a number of risks and uncertainties, including without limitation the risk factors set forth under the caption risk factors in our prospectus filed with the SEC on September 3rd, 2021, and in our other documents filed with or furnished to the SEC from time to time. Forward-looking statements made today represent our views as of March 14, 2022. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance, and events and circumstances Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, including adjusted gross profit, adjusted gross margin, and adjusted EBITDA, which we believe provides an additional insight for investors in evaluating ongoing operating results and trends. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. Reconciliations from GAAP to non-GAAP metrics for our reported results can be found in our press release issued today and in the accompanying investor presentation. Finally, to provide investors with incremental insight and transparency, today we will begin sharing two additional performance typical of a SAS business, ARR and RPO. ARR, or annual recurring revenue, represents our subscription revenue as well as the recurring service revenue related to purchase subscriptions normalized to a one-year period. RPO, or remaining performance obligation, reflects the difference between contract value and revenue recognized for installed units as of the end of the quarter. DCD and RPO should be viewed independently of and not as a substitute. or a forecast of revenue or deferred revenues. Please keep in mind our definition of these measures may differ from similarly titled metrics presented by other companies. With that, I'll turn the call over to Peter.

Peter? Thanks, Brian, and thank you, everyone, for joining us today. We're pleased to share the highlights of our fourth quarter and full-year results, as well as our strategy and goals for 2022. But before we do that, let me take a moment here on slide four to remind everyone of our mission, which is to democratize security, making venues, facilities, and people everywhere more secure and making the world a safer and more enjoyable place to work, learn, and play. Moving to slide five, there are powerful secular growth trends that continue to drive the need to digitally transform facility safety and the visitor experience. The current accelerating trends in firearms ownership, pandemic awareness, and anxiety are converging and driving increasing focus on visitor safety and the visitor experience. We know the public is demanding a better way to gather again. They do want to visit venues again, but they want to do it safely, safe from the threat of gun violence and safe from health risks like COVID. They want to have a frictionless and touchless venue experience, and they want that experience to be personal, informed, and smart. Moving to slide six, I believe today's imperative and urgent need is to make everyone and everywhere safer. It's our shared belief that the pandemic has forever changed the way we live, how we work, and where we play, that the world has become a more unpredictable and scary place, and that with that, people have an elevated sense of anxiety about gathering again, and that's not gonna change anytime soon. We know that gun violence in the United States is at historic highs, as evidenced by close to 700 mass shootings in 2021. I personally spend lots of time in the field listening to our customers, and I'm sure about one thing. They're relying on us, on Evolve, our solutions, to help make their venues safer and their visitors happier. This is a moment, a unique moment, as venues and companies are making the architectural shift from analog to digital, and Evolve is leading the digital transformation of physical security. As you know, Evolve developed the first and only AI-based weapons detection platform that prevents threats from entering places they shouldn't, while preserving the visitor experience as people walk right in at the pace of life. To our SaaS-based description model and unprecedented data set, we can finally democratize security and make it available to anyone who needs it. This is our mission at Evolve and why I feel so strongly about our business today and about our future tomorrow as the human security company. The results we're reporting today reflect that intersection of our mission and our imperative to meet the moment we now have. Moving to slide seven. Our fourth quarter results were highlighted by strong new customer acquisition, the introduction of demand-driven product innovations, and acceleration with our channel partners. We reported total revenue of $6.8 million in the fourth quarter, up 236% year over year, and full-year revenue of $23.7 million, up 395% over 2020. As Mario will describe in his remarks, we hadn't adjusted in revenue recognition in the fourth quarter of 2021 as we determined that our SAS offerings have now taken on a greater portion of our offerings overall value delivered to our customers. This in turn requires us to ascribe more value to our subscription revenue. We believe this is a positive transition for a growing SaaS business like ours. Despite this change, we still reported revenues for the year that were beyond the top end of our guidance range while adding greater visibility into our expected forward revenues. We added 84 new customers in 2021, which was seven times the number of our new customers added in 2020. We defined subscriptions or deployed units as active revenue generated of Evolve Express under contract. We grew subscriptions from 214 to over 700 in 2021, reflecting growth of 229% year over year. We had no subscription churn in the fourth quarter and have not had any renewal up to yet. Finally, total contract of orders booked for TCV was $17.9 million in the fourth quarter, up 201% year-over-year, and was $53.8 million in 2021, up 148% year-over-year. Turning to slide eight. We were honored to welcome more than two dozen enterprises to our customer base in the fourth quarter. While others in the security screening market cite number of pilots or RFP activity, we're grateful to have added 84 new customers in 2021 to bring our customer base to over 200 at the end of the year. Our pace of new customer acquisition accelerated throughout the year. In the fourth quarter, we again saw a broad diversification of our customer acquisition activity. As you can see on this slide, some of our newest customers include DHL, Birmingham Racecourse Casino, Champaign Schools, Fall River Public Schools, Florida Theater Performing Arts Center, the Fox Theater in Atlanta, the Jalaz Center, the Monterey Bay Aquarium, the North Shore Hospital, the Van Wessel Performing Arts Center, and the Woodruff Arts Center. Twenty percent of our TCV came from professional sports, vertical, as we secured another NFL franchise, our fifth pro football team, as well as another MLB team, our fifth professional baseball franchise. We now have 15 percent of the NFL and nearly 20% of the MLB are now Evolve Express customers. We also landed an important opportunity by winning the Capital One Arena in Washington, D.C. Nearly 15% of our TCV in the fourth quarter came through K-12 education markets, where we closed six transactions. We unfortunately saw acceleration in that market immediately following the school shooting in Oxford, Michigan. Ten percent of our TCV in the fourth quarter came from tourist sites, including the Monterey Bay Aquarium and some of the most iconic venues in the United States. We saw important contributions from the healthcare market, which includes hospitals and clinics, and represented about ten percent of our fourth quarter TCV. We also saw continued growth in the hotel and casino market, which represents about 10% of our fourth quarter TCV. Three other vertical markets each contributed about 10% to TCV in the quarter, including performing arts centers, convention centers, and factory warehouses. Let's turn to slide nine. to update you on our go-to-market efforts, which consist of a direct quota-carrying sales force, as well as a growing network of channel partners that help extend our reach in certain geographies or vertical markets. We've been clear about our intentions to scale the company with and through partners in an approach we refer to as channel-centric. Our goal at the beginning of 2021 was to secure 15% of our TCV with partners. We ended up doubling that to 30%, strong evidence of both customer demand and partner engagement. 45% of our fourth quarter TCV involved a partner, and we're now starting to see transactions close with channel partners without any involvement at all from us. We are seeing broad activity across three dozen authorized channel partners and several strategic global partners in Johnson Controls, Stanley Black & Decker, and of course, Motorola Solutions, where incidentally, the number of qualified opportunities in our pipeline more than doubled in the fourth quarter to over 500 prospects. Turn to slide 10, highlights the growing separation that we're creating between evolved technology and the rest of the competitive market. There are several unique elements of the evolved story which are highlighted here on the left side of the slide. We are currently commercially screening more than 20,000 people every hour or on average about 500,000 people every day. That volume is important when you consider that we're collecting more than 1.5 million data points for each of these visitors. Said another way, we're collecting about 750 billion security data points every single day across more than 200 venues in more than a dozen vertical markets. Simply put, we've created what we believe to be the single largest data lake in the security screening industry. As a result, our customers turn to us to power their digital thresholds. We're digitally transforming security by and with critical capabilities in such areas as weapons detection, crowd assessment, mass notification, and people analytics. These capabilities enable us to continually raise the bar of innovation and bring better and better products to the market. And in time, we believe this will enable us to optimize average revenue per unit, or ARPU, and maximize renewal rates as and when customers reach the end of their initial SAS contract. By having more data and better products, we believe we're able to deliver a superior value proposition to the market. We're able to classify REST, based on this unique, large, and rapidly growing data set that makes it possible, with our advanced algorithms, to improve detection accuracy over time. We believe this enables Evolve to deliver an improved security posture, which makes our customers' venues safer than ever before. In addition, we also deliver a superior visitor experience as our customers' customers can enter the venue without ever slowing down, without ever divesting of their personal items, and without ever forming a single file close contact line. We strive to deliver significant operational efficiencies that drives up to 70% cost savings for venue operators. Finally, we're able to provide venue operators with a higher level of valuable data which are delivered automatically and available on demand via Evolve Insights, our analytics platform, to enable our customers to make better security decisions before, during, and after events. Before I turn things over to Mario, I want to turn to slide 11 to share some thoughts as to some of the near-term and longer-term drivers of our business, which we believe position us well to fulfill our mission of democratizing security for all. Several of the near-term drivers of the business include the reopening of facilities, and that's happening right now. Facility operators are looking for a new and safer way of welcoming visitors back, and certainly Evolve Express does just that. We will look to balance this demand with the impact that COVID has had and likely will continue to have on both our supply chain as well as our ability to access customers' premises to install booked units. Other near-term drivers are expected increases in quota-carrying sales executives, the increase in quotas for 2022, and the price book increases we have implemented to gain full value for our subscription offering while also offsetting the impact that increasing inflation has had across nearly every industry. Another driver is our channel-centric strategy, which continues to show growing momentum. We're expecting channel partners to be involved in as much as 40 percent of all opportunities in 2022, up from 30 percent in 2021. Switching to some of the long-term drivers of the business, first and foremost, The secular demands for strong public safety is more important than ever. Unfortunately, trends in gun violence are escalating, not abating. Second, we see a significant long-term opportunity for both with existing and new channel partners. We are making great progress, and still there's much more to do. We expect to benefit from ancillary revenue streams with analytics and digital tools, which we expect will drive average ARPU higher over time while also enhancing renewal opportunities. Finally, we anticipate new potential products that can drive deeper penetration of large untapped TAM segments. With that, let me turn things over to Mario, who will take you through our financial results, key trends, and our outlook for 2022. Mario? Thank you.