Evolv Technologies Holdings, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Evolve Technologies first quarter earnings call. At this time, all parties are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, you can press star and then zero. And as a reminder, this conference is being recorded. I'd now like to turn the call over to our host, Mr. Brian Norris. Please go ahead, sir.

Thank you, sir. And good afternoon, everyone, and welcome to the call. I'm joined here today by Peter George, our President and Chief Executive Officer, and Mark Donahue, our Chief Financial Officer. This afternoon, after the market closed, we issued a press release announcing our first quarter results and our updated business outlook for 2023. This press release is available on the IR section of our website, as well as all major news outlets. During today's call, we will make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities and Exchange Act of 1934, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that relate to our expectations and views of future events including, but not limited to, statements regarding our future operations, Growth and financial results are potential for growth and ability to gain new customers, demand for our products and offerings, and our ability to meet our business outlook. All forward looking statements are subject to material risks and uncertainties and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from these forward looking statements Because of a number of risks and uncertainties, including, without limitation, the risk factors set forth under the caption risk factors in our annual report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 24, 2023, as updated in our other documents filed with or furnished to the SEC from time to time. The forward-looking statements made today represent our views as of May 10, 2023. Although we believe that the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance, or the events and circumstances reflected in our forward-looking statements will be achieved or will occur. Acceptance 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, which we believe provide additional insights for investors. These measures should not be considered in isolation from or as a substitute for financial information provided and prepared in accordance with GAAP. Reconciliations between non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We will be discussing key metrics such as annual recurring revenue, or ARR, remaining performance obligation, or RPO, deployment activity, and total number of subscriptions, each of which we believe are helpful to investors in understanding the progress we're making as a business. In addition, investors will note that today's press release also included additional disclosures around recurring and non-recurring revenue, which we believe provides further transparency as to the fundamentals of our revenue growth. Let me briefly remind investors that we'll be hosting our first ever Evolve Technology Analyst Day on Thursday, May 25th. That event will take place immediately following the JPMorgan Technology Conference. So if you're planning to be in Boston for that event, we encourage you to join us for our Analyst Day. For more information about that event or all of our IR programs, please contact me at bnorris at evolvetechnology.com. With that, I'd like to turn the call over to Peter. Peter?

Thanks, Brian, and thank you, everyone, for joining us today. I'm going to spend a few minutes on our results for Q1 and then review the trends that are driving those results and then close by sharing a few highlights from a couple of recent implementation stories to shed more light on the benefits our customers are realizing from our solutions. Mark will then walk you through our financial results and our outlook for the remainder of the year. During the first quarter, we delivered strong results across every key measure of the business. Based on the strength of those results and the confidence we have in our outlook for the remainder of the year, we're raising our guidance for 2023. Revenue in the first quarter was $18.6 million, up 113% year over year. Our growth continues to reflect strong new customer acquisition activity and the continued expansion of our subscription base. We welcomed over 60 new customers in the first quarter, including our hometown Boston Red Sox, and activated another 520 new multi-year subscriptions of Evolve Express. We now serve nearly 600 customers with close to 2,800 units deployed. We continue to believe that our new customer acquisition efforts are resulting in a first mover advantage due to the strong network effect dynamics of our market. And as we introduce new applications, we believe we can extend our customer value proposition, which we believe will drive higher revenue per customer and optimize renewal rates. We grew ARR from 34 million at the end of 2022 to 42 million at the end of the first quarter of 2023, reflecting growth of over 23% sequentially. As Mark will describe more fully, our efforts over the last six months to shift more of the business to pure subscription is already beginning to impact our operating results as demonstrated by strong gross margin expansion in Q1. We remain on track to double ARR in 2023, which, combined with the gross margin expansion and prudent expense management, gives us confidence in our ability to deliver adjusted EBITDA ahead of our earlier targets. We also believe we're in a much stronger net cash position today than we were just a quarter ago thanks to faster gross margin expansion and certain strategic initiatives we've implemented on the partnership side, which we will expand upon during this call. We remain well capitalized and expect to reach cash break-even with between $75 and $100 million in net cash. Mark will share more thoughts on our results and our upwardly revised outlook in a few moments. Our mission is to make the world a safer place to live, work, learn, and play. And there's never been a more important moment for our company than right now. 2023, tragically, begun with an unprecedented level of gun violence in America with 202 mass shootings in the first 130 days of the year. Ahead of last year's pace, which resulted in 647 mass shootings. In just a few short weeks, we lost six people, including three children, at a school in Nashville, five employees at a bank in Louisville, four teenagers at a Sweet Sixteen birthday party in Alabama, and eight people just this past weekend in a shopping mall in Texas. These events underscore the urgent need to take more proactive steps to prevent gun violence. With gun violence now surpassing car accidents as the number one cause of death for kids under 18, our country is crying out for more effective solutions. With modern advances in sensor technology, data-driven software, the ubiquity of cameras, cloud connectivity, artificial intelligence, and machine learning models, technology can play a crucial role in addressing this tragic epidemic. Just like digital advances can bring civilians to space, drive cars autonomously, and help address challenges in climate change, developments in artificial intelligence can be applied to the gun violence epidemic gripping the country. Our customers across stadiums, schools, hospitals, theme parks, and performing arts venues have partnered with Evolve Express for this help. As security professionals, we know that there's no perfect solution, no absolute prevention, but with advanced cutting-edge technology like ours, combined with a multi-layered defense architecture that includes trained people and proven security processes, we believe that as a society, we can begin to reverse the escalating trends that we are now seeing. We believe we are making a positive difference to our rapidly growing customer base. We have now screened over 600 million visitors and are now finding on average over 450 guns every single day. We're partnering with our customers to create safer zones and our relenting focus to get Evolve Express in places where people gather and to truly democratize security in America inspires our team every day to help prevent even one more violent interaction with a gun. I want to share with you some insights into some of the key trends we're seeing in the business. We continue to see broad adoption of our solutions with strong end market demand in education, in healthcare, and professional sports are key vertical markets. Of note, we're beginning to see growing traction in industrial workplaces, which was our fastest growing market in Q1 and which we believe will be a fundamental driver of our growth in 2024. The demand in education continues to accelerate. The education market again represents 50% of our business in the first quarter, We added over 65 more school buildings in the first quarter, up from 400 school buildings at the end of 2022. I believe that we will add at least one more school building every single day here in Q2. We extended our penetration rate among the 100 largest school districts in the country, which now stands at 11. We're pleased to welcome the Cobb County School District in Georgia the Baltimore City School District in Maryland, and the Douglas County School District in Colorado. We also added Clovis Municipal Schools in New Mexico, as well as the Hopewell City Schools and the Manassas City Public Schools, both located off the interstate of 95 in Virginia. We're also beginning to accelerate our presence in schools out west with newer deployments in Colorado, New Mexico, Utah, and in California. Evolve Express can now be found in schools across 34 states and is now being used to screen hundreds of thousands of students every single day. We continue to extend our early leadership position in the healthcare market which includes over 6,000 hospitals, where over 70% of workplace violence takes place. We're pleased to report that we added another 20 new healthcare customers in the first quarter, including Nemars Children's Hospital in Delaware, the Gerard Champion Regional Medical Center in New Mexico, and Doyleston Health in Pennsylvania. We're now deployed at over 150 hospital buildings across the country, which is up more than 10x over last year. Professional sports remains a high visibility vertical market for us. We now partner with 10 teams across the National Football League, four teams across the National Hockey League, and seven teams across Major League Soccer. We had a very busy spring across Major League Baseball as we helped open the seasons for the Boston Red Sox, the Minnesota Twins, the Philadelphia Phillies, the Houston Astros, the New York Mets, the Pittsburgh Pirates, and four other franchises. We now screen millions of fans of nearly three dozen professional sports teams across the NFL, MLS, MLB, and NHL. We continue to see accelerated momentum with our channel partners, which include Johnson Controls, Securitas, Motorola, Alliance, Stone, and over 70 other partners. A record 80% of our bookings activity in the first quarter came with or through a channel partner. We're also pleased to announce our expanded relationship with Columbia Tech, our longtime contract manufacturing partner. CT is now an authorized distributor of Evolve Express and will play an important role for customers that prefer to purchase Evolve Express while concurrently entering into a long-term subscription contract with us for those related software. We believe this expanded partnership will ensure that we can fully support the buying preferences of our customers while also driving gross margin expansion over the next several years. CT continues to be a strong partner for the company. Another important trend that we saw throughout the first quarter was the increased adoption of our full subscription model. As we've shared with investors in the past, we've been leading with our subscription model for over six months now, and that effort is beginning to pay dividends. In fact, over 60% of all unit bookings in the first quarter were via our pure subscription model. That was directly correlated to the gross margin expansion we delivered in Q1. Finally, we saw deal sizes continue to increase, with ASPs up about 20% from the year-ago period. That reflects the trends we're seeing in both expanding ARPUs and average deal size. Specifically, the average deal in Q1 included five Evolve Express units, compared to four in the fourth quarter and three in the first quarter of last year. So that's a look at some of the trends that are shaping the business early in 2023. Let me shift and bring to light two brief customer stories, one in education and one in industrial warehouses, to shed more light on the value of our solutions that are being delivered. When it comes to the safety of students, administrators, teachers, staff, parents, and visitors, many would consider James Island Charter High School in Charleston, South Carolina to be at the head of the class. The school, which is home to 1,600 students, began using hand-worn metal detectors in 2018 and walk-through metal detectors in 2020 to elevate their security posture. But they ultimately determined that traditional metal detectors were problematic as lines would form outside the school, creating anxiety and frustration, as well as soft targets. They established new goals to reduce long wait times, minimize false alarm rates, eliminate potential security screening biases, and reduce the number of staff members required to manage security screening. School officials elected to implement Evolve Express, and the results have been staggering. The long lines and soft targets have been eliminated. Security screening staff have been reduced by 33%. Student concerns over security screening biases have been reduced, and they've begun to develop plans to further extend their deployment to include athletic events for additional layered security. Let me shift and share some insights from the industrial workplace market, which is home to tens of thousands of manufacturing plants, distribution centers, and warehouses. Purple Innovation, based in Alpine, Utah, designs and manufactures a variety of products, including mattresses, pillows, bedding, and frames. They have over 1,500 employees and operate over 50 manufacturing and retail locations across the United States. They established specific criteria as they launched the search for security screening solutions for their manufacturing facilities, which operate across two 12-hour shifts, six days a week. First and foremost, they were looking to dramatically reduce the likelihood of a weapon getting into Purple manufacturing facility. They also wanted to enable employees to focus on work and feel a sense of safety while on site. They needed to screen hundreds of employees during shift changes in a matter of minutes. Lastly, they wanted to brand security screening and promote safety for HR recruitment. After seeing Evolve Express in action at a sports stadium, Members of the Purple Innovation Management Team decided to move forward with our solution and the outcomes have been very positive. They're now screening over 300 employees in less than five minutes during shift changes. This is significantly faster compared to their legacy walk-through metal detectors and with far few nuisance alarm rates. They've minimized the risk of weapons entering one of the company's facilities and they've also improved their security posture by integrating Evolve into the security technologies including their milestone video security system. Next for them is the installation of revolving doors at their facilities with an API connection to Evolve Express so that those doors can be automatically locked when a weapon is found. So to summarize, we're reporting solid first quarter results, highlighted by strong growth in revenues, ARR, and RPO. We again delivered strong growth both in new customer acquisition and in expanding deployments within our existing customer base. We're continuing to see evidence of the leverage in our business model as the revenue growth again outpaced operating expense growth. We remain on track with a growth plan for 2023, which is focused on doubling our ARR. And we believe that the strength of our balance sheet will enable us to reach cash break-even without the need to raise any additional capital. With that, let me turn things over to Mark, who will take you through our financial results and our outlook.