Evolv Technologies Holdings, Inc.

Thank you for standing by, ladies and gentlemen, and welcome to the Evolve Technologies first quarter earnings call. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. You can queue up at any time during today's call by pressing 1, then 0. As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Senior Vice President of Finance and Investor Relations for Evolve Technologies, Brian Norris.

Thank you, Ryan, 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 2024 results and our business outlook for the remainder of the year. The press release has been furnished with the SEC and is also available on the IR section of our website. During today's call, we will make forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to our current expectations and views of future events, including, but not limited to, statements regarding our future operations, growth and financial results, our 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, uncertainties, and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from those 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, 2023, filed with the SEC on February 29, 2024, and our quarterly report on Form 10-Q for the three months ended March 31, 2024, filed with the SEC earlier today. The forward-looking statements made today represent our views as of May 9, 2024. 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 prepared in accordance with generally accepted accounting principles. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA, adjusted earnings, and adjusted earnings per diluted share. Reconciliations between these 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 is helpful to investors in understanding the progress we are making as a business. With that, I'd like to turn the call over to Peter. Peter?

Thank you, Brian, and thanks, everyone, for joining us today. I'm going to spend a few minutes on our Q1 results, provide a brief update on the regulatory front, and then walk through the trends that we're seeing in the business. Mark will then walk through our financial results and our outlook. Revenue in the first quarter was $21.7 million, up 17% year over year, reflecting new customer acquisition activity, strong expansion from our installed customer base, continued traction with our channel partners, and growth in subscriptions of Evolve Express. Our growth rate reflects the transition away from one-time product sales, which was central to our revenue just a year ago. Reoccurring revenue was 89% in Q1, compared to about 50% in Q1 of last year. We welcomed over 50 new customers in Q1, and now serve about 750 customers across 10 key vertical markets. ARR grew 10% sequentially and 96% year-over-year to $83 million at the end of the first quarter of 2024. Adjusted gross margin expanded to 61% in Q1 compared to 26% in Q1 of last year. This is largely attributable to the shift to the description distribution subscription model we introduced last year and the related transition to a higher level of reoccurring revenue. We activated 377 new multiyear subscriptions of Evolve Express, which is lighter than we were anticipating for the quarter. Notably, this figure excludes units from the high number of direct rentals we shipped. Since the year began, We've sent about 75 Evolve Express systems to support major events, including the world's largest sporting event taking place in France, and to the Detroit Police Department in support of the annual college football draft. Rentals like these accelerate our presence in the geography and further raise awareness of Evolve technology. Again, none of these units were included in our deployed unit count. While our overall win rate improved to 79% from 71% in Q1 of last year, certain late-stage deals we were working on in the final weeks of the quarter were pushed into the second quarter. Some of these opportunities were delayed as customers worked to satisfy the incremental due diligence requirements related to, among other things, the regulatory inquiries and slanted coverage from the select media outlets we have discussed on previous calls. Our recently completed analysis of the quarter revealed that our average sales cycle lengthened by about 40% in Q1 of 2024 to five months compared to three months in Q1 of 2023. Customers are asking more questions as they make their way through the buying journey. We are simply not gonna rush our customers through that process or that decision. We have a lot of confidence in the outcomes of those decisions. The good news is that several of these deals have already closed here in Q2 and we're off to a strong start to the second quarter. We continue to work with the FTC as they complete their work and have provided documentation and information responsive to their inquiry. We're also working with the SEC, but their work is still in its earliest stages. So what does all this mean to our business? While we believe the regulatory overhang has lengthened sales cycle, it does not appear to be impacting our win rate. It is a little less clear as to what impact, if any, there has been on opportunities in which we're not invited to participate because of uncertainty in the marketplace. It has, however, made it a bit more challenging to provide forecasts in the near term since possible deal slippage is by its nature uncertain. For that reason, we think it's prudent to be a bit more cautious in our annual outlook. That said, we remain committed to reaching positive adjusted EBITDA by the second quarter of 2025. We are maintaining our commitment to profitability with prudent expense management and the leverage we're expecting from the advanced data-driven methodologies we're implementing across the company. So, we're on the final stretch to profitability. I want to share a few other updates across the business. Investors will recall that we brought on board several senior sales and marketing professionals in the last six months, including a new chief commercial officer, a new chief marketing officer, and a new senior channel leader. We did this to address gaps we had previously identified in our sales execution process, which we believe contributed to the softer than expected start to the year. We're pleased to report that the new team is making great progress in restructuring demand generation efforts, up-leveling brand awareness and optimizing channel partner effectiveness to improve our overall go-to-market motion and scale in our business. We are seeing strong levels of customer interest in Evolve Visual Gun Detect, our newer offering designed to detect individuals with brandish guns in or around a venue. We are seeing demand for this solution across multiple vertical markets. Staying on the new product front, Mike, Parag, and the R&D team are working on some very interesting initiatives in our innovation labs. These new products, which we will be a mix of both digital and physical, will provide additional capabilities in our vertical markets, addressing our customers' needs and extending the Evolve ecosystem to continue on our mission. We expect these subscription-based products to be sold to new and existing customers, expanding the lifetime value of our customers and helping them create safer environments. I expect us to make a major new product announcement before the end of the year. Stay tuned for that. Moving to our go-to-market partners. Over 70% of our sales activity came with or through our channel partners in Q1. These are partners that extend our reach into certain verticals or geographies where they have a particularly strong presence. We saw strong activity with Motorola, with whom we had the most booked units since Q4 of 2022. We expect to continue to see strong activity with Motorola, Johnson Controls, Securitas Technology, and dozens of other regional partners like Alliance Technology Group and Stone Security. These relationships will be central to our plans to scale over time. We had our first meaningful set of units come up for renewal in the first quarter of 2024, and as expected, over 90% of the units did in fact renew. Nothing speaks more to the confidence and the value that our customers realize in our company and our products than renewing a subscription contract. In addition to renewal rates, We believe that Booking's contribution from existing customers can provide very strong validation of customer trust and competence. We're pleased to report that 49% of our booked ARR in Q1 was from existing customers compared to 43% in Q1 of 2023. These are customers that have thoroughly tested and deployed our technology and have made the decision to expand. So, strong validation there. I want to turn to the trends we're seeing in markets, starting with education, where we welcome 15 new customers. In Q1, we did not have any seven-figure ARR deals in education, which has been a driver in prior quarters. We believe that that may indicate a little bit of seasonality in the education market. We are seeing a shift as more school districts change the way they fund security technology in preparation for the expiration of ESSER funding later this year. School boards are finding ways to fund our solution using their operating budgets and capital projects funding. This can make Evolve more embedded in a district standard purchasing motion as opposed to a one-time grant. School officials are finding creative ways to prioritize our solution in the absence of obvious funding sources. We're also seeing larger school districts in states like Maryland and Kentucky increasingly phase their deployments over multiple quarters, so while we are winning large opportunities, they do not always show up as booked ARR or deployed units in a single quarter. We have several potentially significant education deals in the pipeline for the latter half of 2024. We're proud to be deployed in 20 of the 100 largest school districts in the country and over 800 school buildings. Our daily school visitor screenings have surged to nearly 700,000 during Q1 of 2024 compared to 250,000 in Q1 last year. Our healthcare market remained robust, with over a dozen new customers added. We're now operational in about 350 hospital buildings nationwide. We achieved an exceptionally high win rate in healthcare in Q1, and are beginning to gain traction at the hospital system level, which is an exciting development. Daily visitor screenings in healthcare facilities tripled to nearly 600,000 in Q1 of 2024 from 200,000 in Q1 last year. Professional sports continues to be a key vertical market for us, and we're proud to be part of the layered security for about 40 teams across all five major professional sports leagues. Recent wins include teams like the Charlotte Hornets, the Portland Trailblazers, the Tampa Bay Rays, and AT&T Stadium, home of the Dallas Cowboys. We're excited to welcome these teams and their fans on board. Finally, I'd like to provide a brief update on the competitive landscape. We believe there is a significant market for AI-based weapons detection, with a few substantial players that are deploying at customers. Our extensive customer base and widespread deployment of units solidify our leadership position in the AI-based weapons detection market. Evolve Express is a critical part of a layered security solution and is used to screen two and a half million visitors every single day. Our 750 plus customers use Evolve Express to tag on average more than 500 firearms every single day. While the market has room for multiple players, we continue to see customers select our products for the detection capabilities, strong focus on end user experience, integration into broader security infrastructure, and ongoing continuous improvements through software upgrades. More recently, we've been securing more head-to-head wins and we're seeing revisitation of previously lost opportunities. We've had at least five recent instances of previous lost opportunities in education and professional sports, not only reengaging with us, but replacing their existing deployments with Evolve. Initially, venues might opt for a cheaper, more limited solution that offers a simplistic and uninformatic red light, green light alerting system. But we're witnessing a shift back to Evolve Express due to its superior capabilities. This is not a one-quarter phenomenon. We look forward to sharing more about our progress on the competitive front in future calls. Before handing things over to Mark, I want to close with our mission, which is to democratize security, making the world a safer and more enjoyable place to live, work, learn, and to play. We will continue to innovate and to deliver on our mission while simultaneously advancing on our long-term operating model and the Rule of 40. We look forward to continuing to update investors on all these goals. With that, let me turn things over to Mark, who will take you through our financial results and our outlook. Mark?