Q3 2023 Evolv Technologies Holdings Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the evolve technologies third quarter earnings call. At this time all participants 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. Please press Star then zero as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Brian Norris Senior Vice President for Finance and Investor Relations for <unk> technologies. Mr. <unk>. Please go ahead.
Thank you, Eric and good afternoon, everyone and welcome to today's call.
I'm joined here today by Peter George Our President and Chief Executive Officer, and Mark Donohue, Our Chief Financial Officer.
This afternoon. After the market closed we issued a press release announcing our third quarter results and our business outlook.
Press release is available on the IR section of our website.
During today's call we will make forward looking statements within the meaning of section 27, a of the Securities Act of 1933 section 21 E.
Of the Securities Exchange Act of $19 34, and the Safe Harbor provisions of the private Securities Litigation Reform Act of 1095 that 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.
<unk> 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 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 24th 2002.
23, and is updated and 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 November 19 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.
Collected in our forward looking statements will be achieved or will occur.
Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.
Please note that 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 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 <unk> remaining performance obligation or <unk> deployed.
Deployment activity and total number of subscriptions each of which we believe is helpful to investors in understanding the progress, we're making as a business.
Investors should note that today, we are providing additional transparency to investors by presenting hardware license revenue on the face of our income statement.
This is the new revenue stream that we receive upfront from Columbia Tech when our customers elect to purchase hardware under our new district distributor model.
We once again have an active IR outreach schedule planned for the fourth quarter.
Highlighted by the UBS Credit Suisse Technology Conference, the Craig Hallum Conference and the Northland Capital AI Conference.
For more information about these conferences or any of our our outreach plans. Please contact me at <unk> at evolve technology Dot com with that I'll turn the call over to Peter Peter.
Thanks, Brian and thanks, everybody for joining us today.
I'm going to spend a few minutes on our results for the third quarter.
Discuss the key trends, we believe are driving those results and then spend a few minutes updating you on the progress we're making with several other important initiatives across the business.
Mark will then walk through our financial results and our outlook for the remainder of the year as well as provide some insights into how we're thinking about next year.
During the third quarter, we delivered strong results across every key measure of the business including revenue.
Our our Po subscriptions and gross margin.
Revenue in the third quarter was a record $22 million.
With reoccurring revenue of $14 3 million up 131% year over year.
Our growth continues to reflect strong new customer acquisition activity and an overall growth in the number of active subscriptions.
We activated over 600, new multiyear subscriptions of evolve express in the third quarter and have now surpassed 4000 units deployed.
We expect it surpassed 7000 units deployed in 2024 and 12000 units deployed in 2025, we remain focused on reaching 100000 units deployed over the next decade.
We welcomed 70, new customers in the third quarter, including such iconic venues as the Nashville Symphony Centre, Philadelphia Zoo, the TGF Golf Arena.
Plaza alive, the broad acres open air marketplace.
Nida casinos and the electronic Red rocks amphitheater in Colorado.
We continue to see accelerated visitor security screening activity.
In fact, we screened over 200 million visitors in the third quarter alone more than double our screening activity compared to a year ago period.
We are now averaging over $2 2 million visitors screen every day up from 900000 visitors in the second quarter of last year.
We have officially surpassed the TSA.
In terms of average daily visitors screen.
Furthermore, I am pleased to report that we have just surpassed 1 billion visitors screen since the launch of evolve Express.
We're not aware of any other company in the world that is screening more people every day then evolve technology.
That new screening data becomes part of our unique screening data lake that helps our systems become smarter over time. This continues to extend our competitive advantage in the marketplace.
We grew ALR from $54 million at the end of Q2 to $66 million at the end of Q3, reflecting growth of over 20% sequentially and nearly a 130% year over year again fueled by increased subscriptions strong new customer adoption and the accelerate.
<unk> shift to reoccurring revenue.
Tonight, we are reaffirming the upwardly revised outlook for 2023, we issued just four weeks ago spin.
Specifically, we remain on pace to deliver our AAR growth of at least 115% in 2023.
And while we're still in the planning stages for next year. Our preliminary models are focused on delivering another very strong year in 2024 with expected <unk>.
Our growth of about 50%.
That would drive us to well over 100 million <unk> in 2024 with gross margins of about 60% and accelerating leverage from our investments.
We believe this would put us in an excellent position to reach positive adjusted EBITDA in the first half of 2025 without the need of any additional capital.
There are several drivers for our industry, leading growth most importantly, the pressing need for improved security.
Every day, we all see the reports of escalating gun violence, and Theyre very places that should be free of firearms schools hospitals warehouses stadiums and places of worship.
But it's in these very same places, where we expect yet another year of tragic gun violence.
In fact in 2023, we've had 597 mass shootings, so far this year, including the recent tragedy in Lewiston, Maine, just three hours north of US here in Boston, which took the lives of 18 innocent people and wounded many more.
To mitigate the risk of mass casualty incidents our customers are increasingly turning to technology to help.
Evolve Express Leverages robust sensor technology advanced AI, driven algorithms cloud connected productivity and extensive data analytics.
We continue to see broad adoption of our solutions with particularly strong end market demand and education.
<unk> care and professional sports.
The education market represented about 40% of our business in the third quarter.
We added nearly two dozen new education customers in the third quarter, including the Wilkinsburg School District in Pennsylvania, The Rochester Institute of Technology.
Inwood Academy for leadership in New York City.
The people for people charter school in Philadelphia, and the Muskegon public schools in Michigan.
Evolve express can now be found in 17 of the top 100 school districts in the country and is being used in over 700 school buildings to screen about 325000 students every single day.
Nothing represents our mission more than keeping kids safe at school.
We're expecting a strong quarter again, an education here in Q4.
We continue to extend our early leadership lead in the health care market, which is comprised of over 6000 hospitals, and where 70% of workplace violence takes place.
We added over a dozen new healthcare customers in the third quarter, including parkland health one of the largest public hospital systems in the United States Windsor Regional Health, which is the 15th largest hospital in Ontario, and just down the 401 from Toronto and the University of <unk>.
Missouri healthcare.
For the second consecutive quarter, we saw 50 plus percent sequential growth in our health care business.
Evolve express is being used in 250 hospital buildings the screen over 400000 hospital visitors every day compared to just 40000 a year ago.
We're seeing growing returns in the investments, we're making in the healthcare and expect the market to be one of our top verticals for quite some time.
We delivered our strongest quarter ever in professional sports, which represented about 15% of our activity in the third quarter.
We're proud to now partner with over 40 teams in stadiums across the National Football League Major League Baseball the National Hockey League and Major League soccer.
New additions during the third quarter included the Houston Texans of the NFL, the Minnesota Wild of the National Hockey League and the football club of Dallas in Major League soccer.
We also accelerated our entry into college sporting facilities highlighted by our win here at Boston College here in our backyard with just deployed 16 evolve express systems to enhance safety for fans.
Of the Eagles, we're pleased to announce our recent entry into the National Basketball Association.
Where we are now supporting fans of two NBA teams, including the 2023 NBA champion Denver Nuggets, and the Phoenix SUNS with more teams expected to come shortly.
With our entry into the MBA. We are now in all five major professional sports leagues here in the U S and are now screening over 20 million sports fans per quarter.
We continue to see accelerated momentum with our channel partners.
We've been clear about our plan to efficiently and effectively scale the company by leveraging demand through our partners.
We continue to see evidence of our progress here as it's over 70% of our sales activity in the third or gaining from our channel partners, including Alliance Technology Johnson controls Motorola Stanley Sierra.
Stealth and security Allied Universal ICU technologies, and many many others.
Throughout the third quarter, we saw an accelerated adoption of our distributor model, which is an important trend as we continue to drive towards profitability.
About 30% of all unit bookings in the third quarter were buyer via our distributor model.
As Mark will describe more fully that shift was directly correlated to the gross margin expansion we delivered in Q3.
Our new distributor model enables customers that prefer to purchase the hardware component of evolve express to do so through our contract manufacturer Columbia attack, while simultaneously, placing a long term software subscription contract with us.
We believe this expanded partnership will enable us to fully support the procurement preferences of our customers, particularly those working with rant resources or accustomed to working under a capex model.
I want to briefly highlight some other important developments during the third quarter.
On the go to market front, we are absolutely delighted to welcome Jay Mule Hopper, who recently joined US in the newly created role of Chief Commercial Officer.
In this role.
He will oversee all sales marketing alliances channels and customer success efforts with the aim of expanding brand awareness driving global revenue and enhancing customer experience.
Jay has an extensive background in both domestic and international sales and marketing SaaS AI big data and analytics.
He most recently served as the Chief marketing officer at Codexis are supply chain management applications provider as previous experiences across privately held and publicly traded technology companies includes executive roles that interlinked IBM and PTC, where he served as VP.
<unk> of sales.
He holds an MBA from Harvard business School, and multiple engineering degrees from M. T. He is based here in Waltham and I can tell you. He is already making a big difference in our business. So we're thrilled to welcome Jay to the company.
Switching gears to the product side.
In Q3, we introduced a new product named of all extend which is designed to detect individuals with brandish guns as they approach the venue expanding security well beyond the doorway.
Evolve extend pushes the parameter out further and addresses a new threat vector.
Openly branded firearms.
As we've seen with incidents in Lewiston, Maine, and Monterey Park, California mass shooters may attempt to enter a facility with a gun brandished evolve extend provides an opportunity to use video based AI to identify this critical threat vector and create time that potentially <unk>.
<unk> and incident.
This innovation aims to provide crucial timely information to first reactors operating the evolve express system, enabling them to swiftly respond to visible guns.
In a world where rapid response are vital in preventing gun violence. This technology becomes absolutely Paramount.
We partnered with omni alert integrating their AI visual gun detection software omni alert gundam detect with evolve express.
Using high resolution <unk> cameras and AI. This system can identify brand as guns at distances up to 100 feet outside the building and can quickly transmit images and live video footage to security staff workforce reactors for quick evaluation and yes.
As you are making.
This early warning system and power security operators to initiate appropriate actions at the threatened and trends and implement emergency procedures promptly which in turn provides enhanced safety and security.
During the quarter. We also introduced express seven data our latest version of our AI based detection algorithm and updated tablet software.
These upgrades, which are available to all of our customers are available through our cloud based SaaS model and continue to set evolve apart from others in the marketplace.
Key advancements with <unk> include a new tablet interface, which offers a simplified home screen a more efficient identification of alerting individuals' improved alert resolution workflow and a more visually appealing and intuitive user interface.
<unk> also offers an updated detection algorithm, which further enhances our ability to detect potential threats, while simultaneously, reducing the frequency of targeted nuisance alarms.
The combination of our accelerating customer deployments and the overall growth in gun ownership are driving the collection of an unprecedented amount of visitor data across our customer base.
With our advanced AI based algorithms.
We're able to leverage this data and over time improve our detection accuracy, which we believe makes our customers venues safer.
We are absolutely pleased to report that our customers used evolve express to tag nearly 300000 guns and knives through the first nine months of 2023.
Q3 was another strong quarter for the business.
Yes.
By every key measure that we can look at.
We're focused on delivering a solid finish here in Q4 and getting off to a strong start in 2024, we are optimistic for our prospects moving forward and remain committed to our mission.
The market for AI based weapons detection is one of the largest and fastest growing markets across the technology space and we are well positioned at its essence leader with over 4000 units deployed representing a penetration rate today of less than 1% and we're just getting started.
We're focused on leveraging our first mover advantage to capture the market and effectively scale the business.
With that let me turn things over to Mark who will take you through our financial results and our outlook Mark.
Thanks, Peter and good afternoon, everyone.
Im going to review, our third quarter results in more detail and then walk through our business outlook for 2023 and share some thoughts on how we're thinking about 2024.
As Peter mentioned total revenue was $20 2 million up 22% year over year.
Our revenue growth was again fueled by strong new customer acquisition activity and the rapid growth of revenue generating subscriptions.
Annual recurring revenue or <unk> at September 32023 was $65 8 million, reflecting growth of 129% year over year and 21% sequentially.
Total recurring revenue during the third quarter of 2023 was $14 4 million compared to $6 2 million in the third quarter of 2022, reflecting growth of 131% year over year.
Our total number of revenue generating subscriptions increased to 4014 at the end of Q3 2023 compared to <unk> hundred 92 at the end of Q3 2022.
This was the primary driver of the strong growth in recurring revenues.
Adjusted gross margin, which excludes stock based compensation was 57% in the third quarter of 2023 compared to 3% in the third quarter of last year and 38% in the second quarter of this year, our improved gross profit and gross margin primarily reflect growing demand for our distributor model.
<unk>, which accounted for nearly 30% of all units booked in the third quarter.
Adjusted operating expenses, which exclude stock based compensation loss on impairment of equipment and certain other one time expenses were $25 2 million compared to $19 8 million in third quarter of last year and $23 7 million in the second quarter of this year.
The increases primarily reflect head count investments in revenue generating positions and in research and development.
Our revenue growth continues to grow significantly faster than operating expenses.
Yes.
We exited the quarter with 281 employees compared to 273 at June 32023, reflecting an increase of eight FTE sequentially.
Adjusted EBITDA, which excludes stock based compensation and the other one time items improved 38% year over year and 20% sequentially.
It was negative $11 1 million in the third quarter compared to negative $18 million in the third quarter of last year and negative $13 8 million in the second quarter of this year.
Turning to the balance sheet, we ended the quarter with $140 million in cash cash equivalents restricted cash and marketable securities down about $16 million sequentially.
Primarily driven by our net loss as well as fixed asset additions to support the pure subscription business.
We continue to encourage investors to review property and equipment on the balance sheet.
Which is where the cash effectively sets that we invest and evolve express systems and future inventory for our pure subscription customers.
Property and equipment has grown by nearly $50 million year to date as more of our business has transitioned to a pure subscription model.
I want to close with a few comments about how we're thinking about the future starting with the close of 2023.
In short we believe we are well positioned to deliver results in line with the upwardly revised growth plans, we shared with investors on October 12.
To that end, we are reaffirming the outlook for 2023 that we shared that day.
Yeah.
We are expecting full year revenue of between 75% to $77 million.
We expect to exit the year with ALR of between <unk> $73 million to $75 million, reflecting full year growth of approximately 115%.
We expect adjusted full year gross margin to be between 43% to 45%.
We also expect adjusted EBITDA to be between negative 50 and negative $53 million.
Finally, we expect to exit the year with cash cash equivalents and marketable securities at the high end of our previously issued guidance of $110 million to $120 million.
Turning to 2024 as Peter mentioned, we remain encouraged by the growth opportunity we see ahead.
While we are still developing our final plans for next year, we want to share some high level perspectives on how we're thinking about 2024.
We are currently modeling full year revenues of about $115 million in 2024, reflecting growth of about 50% year over year.
We believe we can exit 2024 with IRR of between 108 and $112 million, reflecting growth of about 50% year over year.
Our models call for adjusted gross margins of about 60% in 2024.
While we have not yet finalized our hiring plans for 2024, we expect to continue to moderate expense growth and leverage our earlier investments.
Of the hiring that we will do in 2024, I expect more than half of the head count additions to be customer facing revenue generating roles.
Based on our current models for 2024, we expect to reduce our adjusted EBITDA loss by at least 40% in 2024.
We believe we remain on track to get the positive adjusted EBITDA in the first half of 2025 and when we do we expect to have cash cash equivalents and marketable securities of between $75 million to $100 million.
Again, we have more work to finalize our growth plans for 2024, but we wanted to share some of our latest thoughts with you.
That's it for now with that I'll turn things back over to Brian.
Thanks, Mark Eric at this time, we'd like to open the call up for Q&A.
Yeah.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command.
If you're using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question you May press one zero at this time.
One moment please for the first question.
And we'll go with.
The line of Mike Latimore with Northland Capital markets. Please go ahead.
Alright.
Congrats.
$1 billion number sounds pretty pretty impressive there.
Got to be in that Mike.
Very good.
<unk>.
So I think at your Analyst day, you talked about a long term growth rate of 30% to 40%.
Initial number you gave there for 25 was <unk>.
Unit growth of well over that number can you just kind of.
Ill provide a little more context on that.
Yeah, Mike we can give you a little bit more context, there I mean, what we're really looking at I think over the long term here is a transition to our distribution model, which is going to happen.
Next year, so we talked about that at the May analyst call.
The growth that we're giving next year is I would say at least 50% that's sort of a starting point for us as we're thinking about the early parts of the of our annual operating plan, which we're still refining.
Through the end of this year.
That Peter talked about 12000 plus units in 2025, that's a number that we're pushing up about 20% from our prior comments there. So I think thats a good indicator.
Of where we're going.
Over that period of time.
And then the mix here are you still thinking purchased subscription could it be sort of 50% of new ads.
Yes. We are we are I think if we go into next year, there's two real components. This pure subscription and Theres distribution, we're moving away from the.
The purchase model that we used to have what we actually ran some of the hardware sales through our books.
We're now we're now really driving that distribution model just in the third quarter alone in the first quarter, we really drove it we did about 30% of our business that way. So we're on path to do the 50 50 going into next year, you'll probably see somewhere in the 40% zone and in the fourth quarter to kind of get to that to that to that third.
85% that we talked about in the back half of the year.
We probably will see some quarters, where it's not 50 50 as we go through the year I think we're really thinking about an annual number of $50 50, it's a little bit hard for us to tell exactly what's going to happen from a quarter over quarter basis.
Thanks, Dan.
Hi, Thanks, Congrats on a great quarter.
Great. Thanks, Mike.
Yes.
Next we'll go to line of Hugh Cunningham with TD Cowen. Please go ahead.
Thank you Hey, guys. Thanks for taking my questions.
Congratulations on a strong quarter, especially the the unit growth there.
And on the <unk> transition.
And for the 2014 guidance couple of quick things first thing is on the product revenue line can you remind me mark what.
In there in addition to.
Or what portion of that is direct sales.
And then I think another piece of that is add ons that.
And that you guys sell like the.
Im guessing the new product.
<unk>.
The one you're partnering with for the brand new weapons, that's not going to be there because thats coming from your partner, but what else is in that number and then the second part of that question is on the product line.
First thing what's in there basically and and how fast you expect it to come down.
Yes, so the product line Hugh.
It really is a combination of a few things.
It's really the.
The piece parts that we sell whether it be tablets or other parts of our business as well as the products that were sold through the old purchase model. We still have units that we sell from time to time.
Including demos that we will that Youll see go through that line. So think about the things going through that line as demos accessories, and our direct product sales overall the extend.
<unk> is likely to have nothing to do with that line, it's going to be a recurring revenue element in our business.
For the most part.
I would say that we're going to we're going to continue to see a reduction in that product revenue line.
We had booked quite a few.
Units in the Q2 timeframe and those can't there is a lot.
Those shipped in Q3, so I expect that to continue to decline into Q4, because we're not we're not booking as many in that area. We will see some next year.
But I would say that the units for the entire year next year would be sub 200.
Okay, Alright, Thanks, and then and then Peter for you two quick ones one.
You talked in the past about the sort of vertical Verticalizing mission of the go to market and the teams are building can you talk about that and then can you talk about the experience of your buyers. So when you.
When you go talking to a customer who is the what's the experience of the person actually making the decision.
What sort of due diligence do they do can you talk a little bit about that.
Sure.
So in terms of verticals, we two years ago as you know in 2022, we vertical is the organization and our sales organization and focused on education.
<unk> healthcare distribution warehouses, and we continue to do that in 2023, we regionalized. So we created five discrete regions that are operating with salespeople have about seven or eight in each of those regions that carry quota and they are focused on the high risk verticals in their regions. So those.
Were really important organizational changes that are helping drive our growth in the company and we're going to we're going to continue to stay focused on that.
As it relates to the buyer experience.
Most of our customers.
<unk> security experts on staff. These are retired police officers people and the secret service military they're steeped in understanding security and often times when they come and see our products. They do their own testing. So we give them the information that we have around what our.
Systems can can detect but they do their own testing as well so.
And they are just absolutely phenomenal and it is a trusted network of security professionals that all know.
Each other and trust each other on the school side, it's slightly different there's not only see arrows and superintendents, but theres a whole set of reseller partners that are subject matter experts that help schools understand their security posture as well so.
Our sales and experiential sale and most of our customers in fact, almost all of them have subject matter experts testing the product themselves.
Thanks, guys I appreciate it.
Thank you.
And once again as a reminder, if there are any additional questions. Please press one to zero at this time.
Our next question.
Our next question comes from the line of.
Chad Bennett. Please go ahead.
Great. Thanks for taking my questions nice job again on the quarter guys. I guess a couple of questions first Mark can you give us an update on unexpressed too.
The new system and hardware kind of how we're progressing there on the cost savings there and timing wise of when we expect that to hit the market.
Yep Yep no problem.
So expressed <unk>.
That's really.
Our costs down effort on on our express flagship product.
About 95% of the functionality we have in <unk> will be will be the same in express too.
<unk> added a few.
A few new things to it but but generally speaking the whole purpose of <unk> is to really.
To help with quality.
To really think about how to how to service it in a more modular way into really kind of take the learnings we had in.
And one kind of position them.
<unk>.
It's the same software stack, so so theres no difference there.
But in terms of the timing of it I think we're expecting it to be to really kind of start to ship in earnest by by the beginning maybe the end of Q2, but definitely by the beginning of Q3. That's the plan. We're on the cost down efforts, we still we still see that being in the in the 30% to 35% range and.
We've kind of locked that in at this point, we're really just going through the final testing and endpoints on the product.
There and we're now.
Building pilot systems, and everything like that so we think that'll be a big push for us in the middle of next year.
On that point I think that cost down effort is more of a $2. Each situation. So I think as.
As we talked about our 60% gross margins we will see.
Greater benefit from that in the second half of the year.
So.
So.
Chad This is Peter I, just wanted to reiterate something that Mark said, which is when we make improvements in our software around efficacy and accuracy. The cloud infrastructure, we have the data analytics all the improvements that we can bring to our customers are happening on our platform today and will happen.
On our future sensor platforms in the future to not always one of those and we're going to get our costs down benefit there, but the magic is really in the software.
And so all of our customers get the benefit of that no matter what sensor platform they're wrong.
And then maybe just a follow up.
In light of kind of recent events and attention around the company.
It seem like.
There has been any abatement in demand and demand actually seems to be.
Almost accelerating to some extent for you guys can you just talk about just kind of the demand environment that youre seeing out there obviously.
<unk> reiterated your <unk> guide for the year and gave us a great early look to 'twenty four but just considering some of the noise out there can you just speak to the demand and awareness of the product today. Thanks.
Yes. Thank you look there is we haven't seen any abatement in demand at all.
And in fact, when we did this result, we've seen an increase in our healthcare penetration, we grew health care by 50% year on year, we had a great quarter and sports.
Education was about 40% of our business. So all of the secular tailwind that have been driving our company from our early days, even before we went public continue and an unabated way I mean to date there have been 597 mass shootings. This year, which is two a day theres lots of gun violence.
A lot of anxiety of society and people want to be safe wherever they go not just in venues, but when they're gathering with other people in bowling alleys and bars in places where people gather in technology can help now create safe zones that people can gather together and know that nobody has.
Happen then we don't see that changing anytime soon and we certainly don't see any legislation on the horizon that will change that so we're working really really hard as a company to make sure that we enhanced our product our detection capability and that we can get as many systems in place to keep people safe and that's our primary.
Mission and goal as a company.
Got it thanks, so much nice job again.
Terrific. Thank you very much operator, I think we have time for one more question.
Okay, and we'll go to the line of Brett <unk> with Cantor Fitzgerald. Please go ahead.
Perfect guys. Thanks for taking my question I guess on that.
The deployment guidance for 'twenty, one 'twenty five.
Is there any chance that you guys did.
A fewer amount of units in 'twenty four than you do in 'twenty three.
It's expected to do in 2003.
No no that's not what we're expecting to do what we're talking about seven 7000 plus.
We're really talking 10000 and thousand unit increments.
I can see is close to 7500 plus.
Got it.
Right. We are in the fall of 2023 24. So we're trying to give you our best view early on in the T box here.
Perfect understood and then if I kind of look at.
Her unit deployed.
It is kind of a priest.
<unk> now for three straight quarters, how should we expect that to trend over the coming quarters is there any.
Reason too.
Believe where that would go down or gyrate or how should we think about that trend.
Look I think we're going to see the distribution model. This past quarter was about 30% of our business I expect it to probably be close to 40 in the fourth quarter and reaching 50 by Q1, and probably holding steady there. So I think mathematically on it on an average basis I think you will see our number come down a little bit more.
And then stabilize as we go forward.
That's just that's just part and parcel to the model of actually moving to that distribution cycle, whether it was less than.
And then we had another models.
Just to remember too in the distribution model, we have a license revenue component.
We didn't have before and that gets recognized immediately and brings in cash to the company quicker than it had before.
And that's not being included and they are correct.
And that's not included in <unk>, you really need to think about us going forward as being about an 80% IRR company and a 20% IP license company.
Understood.
Okay.
Expanded gross margins that will continue.
Right.
Alright.
Alright.
Got it.
And then if I could just ask one.
I know when you guys pre announced you also disclose.
The FTC with mitigating I don't see you guys brought it up in the call, but just curious.
If you guys had any color on what they are looking at or.
To provide any clarity on the situation. Thank you.
Yes, so we're not at Liberty to talk too much about that but we are working with the FTC on their inquiry.
Around questions around our marketing.
And we're answering every question that they have there is no.
Question or a challenge around our technology, we standby that it's really about marketing claims and were very confident going forward that.
Sure.
We will end up at a really good place we cant talk much about it what we can say is it hasnt had any impact at all on on our business. Our customers are talking about it is.
It's not getting in the way of anything and we're out serving our customers living to the mission and keeping kids and people safe every day and that's that's what we're very very focused on.
Understood. Thanks, guys congrats on the quarter.
I'm going to turn the call over to Peter George for a few closing remarks.
Thanks, Brian.
Thanks to everybody who joined US today, we're really pleased with.
With the results that we were able to take you through we think our customers and our partners.
All of the dedicated revolvers that work tirelessly every single day to make our systems better.
More accurate and more.
More secure to keep venue safe, we're really pleased with what we were able to talk about today in terms of our results we had record revenues record <unk>.
Record RP O.
And record gross margins and I just wanted to reiterate that we took year on year, our gross margins from 3% to 57% so huge benefit there and as Mark talked about Theres some headwinds.
With the with our distributor in terms of the purchased subscription, but the benefit there comes in gross margins, which should get us to <unk>.
EBIT positive sooner than we would have thought before so some real goodness there as a company.
We continue to see really great customer activity and acquisition, we had 70 new customers. This quarter I'll remind you of our largest customers Charlotte Mecklenburg District schools has a 180 systems that we count that as one customer so we have an expanding.
ASP with our customers we continue to innovate in the company, we're thrilled about the extended product pushing the perimeter out.
Being able to gain time to prevent mass shootings from happening Mark already mentioned, our distribution bottle and how thats paying off particularly in gross margins and then as we think about next year right.
The 50% <unk> growth.
And then 50% revenue growth, we're thrilled about so we will get to adjusted EBIT positive as we mentioned in the first half of 2025 and we're excited about that.
All that being said, while we take great pride in our achievements at.
It weighs heavily on us and our hearts to share Tonight amidst the global conflicts and the escalating violence going on around the world.
The unfortunate cycle of violence results in sorrow loss and perpetuates further for <unk>.
Evolve we are resolute in our belief that the world triumphs over adversity by persisting in the pursuit of positive change as revolvers, we are relentlessly committed to making the world a safer place to live to work to learn and to play thanks everybody.
Okay.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T Conferencing service you may now disconnect.
We're sorry your conferences ending now please hang up.