Q4 2023 Evolv Technologies Holdings Inc Earnings Call

Operator: Thank you everyone for standing by, and welcome to Evolv Technology's fourth quarter earnings call. At this time, all participants are on a listen-only mode.

Yes.

[music].

Thank you everyone for standing by and welcome to the <unk> Technologies' fourth quarter earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

Operator: Later we will conduct a question and answer session. Instructions will be given at that time. I will now turn the call over to your host, Senior Vice President of Finance for Evolv Technology, Brian Norris.

I will now turn the call over to your host senior Vice President of Finance for <unk> technologies.

Ian Norris.

Brian Norris: Thank you, Kevin. And good afternoon, everyone. 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 fourth quarter 2023 results and our business outlook for 2024. This press release has been filed with the SEC and is also available on the IR section of our website. The format for today's call is as follows: Peter will share his thoughts on our performance in Q4 and 2023, and Mark will review our detailed financial results, provide a brief update on the regulatory front, and share some thoughts on how we're thinking about 2024. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Thank you Kevin and good afternoon, everyone 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 fourth quarter 2023 results and our business outlook for 2024. This press release has been furnished with the SEC and is also available on the IR section of our website.

The format for todays call is as follows Peter will share his thoughts on our performance in Q4, and 2023 and Mark will review our detailed financial results provide a brief update on the regulatory front and share some thoughts of how we're thinking about 2024.

During today's call, we will make forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Brian Norris: 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.

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.

Brian Norris: 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, 2023, which we filed with the SEC earlier today. The forward-looking statements made today represent our views as of February 29th, 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. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.

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, 2000, 2023, which we filed with the SEC earlier.

Today.

The forward looking statements made today represent our views as of February 29, 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.

Sept as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.

Brian Norris: Before I review some of the non-GAAP measures we'll be talking about, I'd like to highlight to investors that there is a companion PowerPoint deck available on our Investor Relations website, which will be the basis of today's conversation. 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.

Before I review some of the non-GAAP measures, we will be talking.

I'd like to highlight to investors that there was a companion Powerpoint deck available on our Investor Relations website, which will be the basis of today's conversation.

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. These.

Brian Norris: These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA, adjusted earnings, and adjusted earnings per share. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today, as well as in the companion PowerPoint deck available on our website. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies.

These measures include adjusted gross profit adjusted gross margin adjusted operating expenses adjusted operating income adjusted EBITDA adjusted earnings and adjusted earnings per share.

Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today as well as in the companion Powerpoint deck available on our website.

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>.

Brian Norris: We will be discussing key metrics such as annual recurring revenue, or ARR, remaining performance obligation, or RPO, employment 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. With that, I'd like to turn the call over to Peter.

Remaining performance obligation or RP O 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.

With that I'd like to turn the call over to Peter Peter.

Peter Gustav George: Thanks, Brian, and thank you, everyone, for joining us today. I'm going to spend a few minutes on our results for the fourth quarter and full year, and discuss the key trends we believe are driving our improving results. And then spend a few minutes updating you on the progress we're making with several other important initiatives across the business. We have a lot of exciting news to share with you today. But before we do that, let me take a moment on slide four to remind everyone of our mission, which is to democratize security, making venues, facilities, and people everywhere safer and more secure. We're focused on making the world a more enjoyable place for people to live, work, learn, and play, and we strive to do that every single day. Our unrelenting focus to help prevent even one more instance of gun violence inspires our team. Moving to slide five.

Thanks, Brian and thank you everyone for joining us today.

I'm going to spend a few minutes on our results for the fourth quarter and full year discuss the key trends, we believe are driving our improving results.

And then spend a few minutes updating you on the progress, we're making with several other important initiatives across the business.

We have a lot of exciting news to share with you today, 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 venue in those facilities and people everywhere safer and more secure work.

Focused on making the world a more enjoyable place for people to live work learn and play and we strive to do that every single day.

Our unrelenting focus to help prevent even one more instance of gun violence inspires our team.

Moving to slide five.

Peter Gustav George: We're delighted to be reporting revenue of $80.4 million in 2023, up 46% year-over-year. Our growth continues to reflect new customer acquisition activity and the continued expansion of our subscription base. We welcomed nearly 300 new customers and doubled our base of Evolv Express subscriptions to just over 4,500. In addition, we grew ARR from $34 million at the end of 2022 to $75 million at the end of 2023, reflecting growth of 120%. Evolv Express surpassed 1 billion visitors scanned in 2023. We now routinely scan more visitors on any given day than anybody else in the world, including the TSA.

We're delighted to be reporting revenue of $80 4 million in 2023.

46% year over year.

Our growth continues to reflect new customer acquisition activity and the continued expansion of our subscription base.

We welcomed nearly 300, new customers and doubled our base of evolve express subscriptions to just over 4500.

Further we grew <unk> from $34 million at the end of 2022.

$75 million at the end of 2023, reflecting growth of 120%.

Evolve express surpassed 1 billion visitors scanned in 2023.

We now routinely scan more visitors on any given day than anybody else in the world, including the TSA.

Peter Gustav George: What's more, Evolv Express was used to identify and tag nearly 400,000 weapons in 2023. We saw growing momentum with key partners like ASM, Columbia Tech, Alliance, JCI, Stanley Securitas, and Ricoh. We have realized several key product innovations, including Evolv Visual Gun Detection, Evolv 6.0, and Evolv 7.0, while also launching a new digital products initiative, all of which combine to further extend our technology moat. Finally, we further strengthened our already strong leadership team with several key additions, including Jay Muehlhofer, our new Chief Commercial Officer, Parag Bhash, our new Chief Digital Products Officer, Courtney Cunane, our new Chief Marketing Officer, and Jeff Seifert, our new Strategic Channel Leader. Fueling the growing demand for venue security is the unfortunate and tragic trend in escalating US gun violence, which is highlighted here on slide six. According to recently released reports from the Gun Violence Archive,

What's more evolve expressed was used to identify and tag nearly 400000 weapons in 2023.

We saw growing momentum with key partners like ASM Columbia attack, Elias J C I Stanley secure tops and repo.

We realized several key product innovations, including evolve visual gun detection evolve six dot O above seven data all while also launching a new digital products initiatives.

All of which combined to further extend our technology moat.

Finally.

We further strengthened our already strong leadership team with several key additions, including Jamie will offer our new Chief commercial officer.

<unk> Bosch, our new Chief Digital products Officer, Courtney <unk>, our new Chief marketing Officer, and Jeff <unk>, our new strategic channel leader.

Fueling the growing demand for venue security is the unfortunate and tragic trend and escalating U S gun violence, which is highlighted here on slide six.

According to recently released reports from the gun violence archive, there were 656 mass shootings in 2023.

Peter Gustav George: There were 656 mass shootings in 2023. Sadly, that's twice the number of mass shootings we saw just a decade ago. We're now in a very different world today.

Sadly that's twice the number of mass shootings, we saw just a decade ago.

We're now in a very different world today as a result venue operators are demanding solutions that can improve security enhanced the visitor experience reduced security labor costs improve worker retention and provide improved visibility to their operations. This is <unk>.

Peter Gustav George: As a result, venue operators are demanding solutions that can improve security, enhance the visitor experience, reduce security labor costs, improve worker retention, and provide improved visibility into their operations. This is exactly what we do every single day. As you can see on slide 7, we screened 720 million visitors in 2023. That's double the number of visitors we screened in 2022. We've now screened well over one billion visitors since the release of Evolv Express just four years ago. With continued momentum in customer growth and deployments, we expect to surpass 2 billion visitors screened by the end of 2024. We believe we're making a fundamental difference to visitor safety around the world. Our customers used Evolv Express to tag about 400,000 weapons in 2023, including about 180,000 firearms and another 220,000 knives. That's an average of more than 1,000 weapons every single day.

Xactly, what we do every single day.

As you can see here on slide seven we screened 720 million visitors in 2023.

Thats double the number of visitors squeeze screen in 2022, we've now screened well over 1 billion visitors since the release of evolve Express just four years ago.

With continued momentum in customer growth and deployment, we expect to surpass 2 billion visitors screen by the end of 2024.

We believe we are making a fundamental difference in visitors safety around the world our customers views evolve express to tag of about 400000 weapons in 2023, including about 180 fire 180000 firearms and another 220000 knives.

That's an average of more than 1000 weapons every single day.

Peter Gustav George: Another significant development is what we view as our growing technical advantage in the market, which is highlighted here on slide 8. Building on our already strong technical lead in 2023, we released several major We introduced Express 6.0, which brought many new advancements to our software capabilities, including a new higher sensitivity threat level option, which has proven effective at detecting smaller threats, including a broader variety of 3.5 to 5-inch folding knives. That has been very well received by our customers. In fact, we saw a 168% year-over-year spike in the number of knives tagged by our customers to just over 220,000, or about 600 knives per day.

Another significant development is what we view as our growing technical advantage in the market, which is highlighted here on slide eight.

Building on our already strong technical lead in 2023, we released several major advancements we introduced express fixed out.

Which brought many new advancements to our software capabilities, including the new higher sensitivity threat level option, which has proven effective at detecting smaller threats, including broader variety of three and a half to five inch folding knives that has been very well received by our.

Customers in fact, we saw a 168% year over year Spike in the number of knives tagged by our customers to just over 220000 or about 600 knives per day.

Peter Gustav George: Based on this data, we believe the higher sensitivity level is delivering an increase in knife detection across our customer base. We expanded our API library, extending integration from Evolv Express to various security systems, including video management, incident response, and mass notification. We also introduced EXPRESS 7.0, which brought yet another level of improvement to our detection algorithm. It reduces nuisance alarms of certain benign items.

So based on this data we believe the higher sensitivity level is delivering an increase the nice detection across our customer base.

We expanded our API library, extending integration from evolve expressed the barrick to various security systems, including video management incident response and mass notification.

We also introduced express seven data, which brought yet another level of improvement to our detection algorithm.

It reduces nuisance alarms of certain benign items, the new tablet interface introduced a simplified home screen more efficient identification of alerting individuals' improved alert resolution workflow and a more visually appealing and intuitive user interface.

Peter Gustav George: The new tablet interface introduced a simplified home screen, more efficient identification of a learning individual, improved alert resolution workflow, and a more visually appealing and intuitive user interface. Because our customers are on long-term subscription contracts with us. They can easily take advantage of these breakthrough capabilities as they're released through our cloud-based environment. With enhanced data and superior products, we believe we offer an extraordinary value proposition to our customers. With our extensive data set, we believe that our advanced algorithms enable us to identify new threats quickly and classify all learned threats more accurately over time.

Because our customers are on long term subscription contracts with us.

They can easily take advantage of these breakthrough capabilities as they are released through our cloud based environment.

With enhanced data and superior products, we believe we offer an extraordinary value proposition to our customers.

With our extensive dataset, we believe that our advanced algorithms enable us to identify new threats quickly and classify all learn threats more accurately overtime.

Peter Gustav George: Through our cloud-based environment, we can efficiently deliver advancements to our customers, making their venues safer. More venue operators are turning to us to power their digital threshold. We are digitally transforming physical security with critical capabilities, not only in concealed weapons detection, but in adjacent areas such as crowd assessment, mass notification, people flow analytics, and now, brandish weapons. Switching to slide nine, in 2023, we introduced Evolv Visual Gun Detection, a new product offering designed to detect individuals with concealed guns as they approach a venue, expanding security well beyond the door. This provides an opportunity to use video-based AI to identify this critical threat vector and create additional time to potentially prevent an incident. Using high-resolution 4K cameras and AI, Brandish guns at distances up to 100 feet outside the building can be identified, with images and live video footage quickly transmitted to security staff for rapid evaluation and decision-making.

Through our cloud based environment, we can efficiently deliver advancements to our customers, making their venue safer.

More venue operators are turning to us to power their digital thresholds, we are digitally transforming their physical security with critical capabilities not only in concealed weapons detection, but in adjacent areas such as crowd assessment mass notification people.

Flow analytics and now brandish weapons.

Switching to slide nine in 2023, we introduced evolve visual gun detection, a new product offering designed to detect individuals with brand as guns as they approach a venue expanding security well beyond the doorway. This provides an opportunity to use video base.

Used AI to identify this critical threat vector and create additional time to potentially prevent an incident at <unk>.

Using high resolution <unk> cameras, and AI brand discussed at distances up to 100 feet outside the building can be identified with images and live video footage quickly transmitted to security stack for rapid evaluation and decision making feeds.

Peter Gustav George: Feedback from early adopters, which includes some of the most discerning customers, has been overwhelmingly positive, and the pipeline for Evolv Visual Gun Detect is growing nicely. We believe new products enable us to continue to raise the bar of innovation, optimize ARPU, and maximize renewable energy. We believe this is the beginning of customers not only buying Evolv Express but rather buying the Evolv platform. As highlighted here on slide 10, we're seeing strong customer acquisition activities. We added 75 new customers in the fourth quarter and nearly 300 new customers in 2023. We firmly believe that highly differentiated new customer acquisition efforts provide a first mover advantage due to the strong network effect dynamics of our market. We're excited to welcome dozens of iconic venues, which recently selected Evolv Express, including the TD Garden in Boston, which is home of the 17-time world champion Boston Celtics and six-time Stanley Cup champion Boston Bruins, the Houston Rockets, and the Charlotte Hornets of the NBA. Three more universities, including Belmont University, the University of Utah, and the New England Conservatory of Music, several additional health care facilities, including the University of Pennsylvania Medical Center, the Memorial Regional Hospital, and the Shore Medical Center, and several local theaters, including Paper Mill Playhouse, Canary Hall, and the Whitewater Amphitheater.

Feedback from early adopters, which include some of the most discerning customers has been overwhelmingly positive and the pipeline for evolve visual gone to detect is growing nicely.

We believe new products enable us to continue to raise the bar of innovation optimize our pool and maximize renewable rates.

We believe this is the beginning of customers not only buying evolve express, but rather buying the evolve platform.

As highlighted here on slide 10, we're seeing strong customer acquisition activities. We added 75, new customers in the fourth quarter and nearly 300 new customers in 2023.

Sure.

We firmly believe that highly differentiated new customer acquisition efforts provide a first mover advantage due to the strong network effect dynamics of our market.

We're excited to welcome dozens of iconic venues, which recently selected evolve express, including the TD Garden in Boston, which is home of the 17 time World Champion Boston Celtics and six times Stanley Cup champion Boston Bruins, the Houston rockets and the <unk>.

Artless corners of the MBA three more universities, including Belmont University, the University of Utah, and the New England Conservatory of music several additional health care facilities, including the University of Pennsylvania Medical Center, The Memorial Regional Hospital and the shore Medical Center.

Several local theatres, including paper Mill Playhouse, Canary Hall, and the Whitewater MP theater.

Peter Gustav George: We also added one of the most iconic venues in North London, Alexandria Palace, which has a storied history with the BBC. And finally, we added the Hollywood Bowl, the world-renowned amphitheater in Hollywood Hills in Los Angeles. We proudly welcome these and dozens of new customers to the Evolv community. As you can see here on slide 11, our newest customers join a large and rapidly growing list of iconic venues that have chosen to deploy Evolv technology. We now serve over 700 customers across our key vertical markets. I'd note that our measure of a customer is arguably a conservative view because of us.

We also added one of the most iconic venues in North London, Alexandria Palace, which has a storied history with the BBC and finally, we added the Hollywood Bowl the World renowned MPC later in Hollywood Hills of Los Angeles.

We proudly welcome these and dozens of new customers to the evolve community.

As you can see here on slide 11, our newest customers join a large and rapidly growing list of iconic venues that have chosen to deploy evolve technology. We now serve over 700 customers across our key vertical markets I'd note that our measure of.

Customer is arguably a conservative view because of US one new customer could mean, a dozen or more buildings and one new school district, or one new health care system.

Peter Gustav George: One new customer could mean a dozen or more buildings in one new school district or one new health care system. We are not aware of any other market participant that has more customers or more long-term subscriptions than Evolv Technology. We expect to surpass 1,000 customers here in 2024. As highlighted on slide 12, our strong new customer activity coupled with expanding deployments among our existing customers has led to significant growth in our installed base of Evolv Express subscriptions in 2023. In 2023, we deployed over 2200 Evolv Express units that are under long-term subscription contracts. We had fewer available installation days in the fourth quarter due to the seasonal holiday schedule, but we were still able to activate about 500 subscriptions in the quarter.

We are not aware of any other market participant that has more customers or more long term subscriptions than evolve technology, we expect to surpass 1000 customers here in 2024.

As highlighted here on slide 12, our strong new customer activity, coupled with expanding deployments among our existing customers has led to significant growth in our install base of evolve expressed subscriptions in 2023.

In 2023, we deployed over 2200 evolve express units that are under a long term subscription contracts, we had fewer available installation days in the fourth quarter due to the seasonal holiday schedule, but we were still able to activate about 500 <unk>.

<unk> in the quarter we.

Peter Gustav George: We now have over 4,500 Evolv Express units deployed. The expansion in our subscriber base was the primary driver of the 120% year-over-year growth in ending ARR. Moving to slide 13.

We now have over 4500 evolve express units deployed the expansion in our subscriber base was the primary driver to the 120% year over year growth in <unk>.

Ending a R R.

Moving to slide 13.

Peter Gustav George: We've seen and expect to continue to see momentum with our channel partners. We're delighted with our partnership with Columbia Tech, or CT, our long-term local contract manufacturer who has assembled every one of the Evolv Express systems that have rolled off the assembly line. In 2023, we expanded our partnership with CP, who has now become a distributor of Evolv Express. This expanded partnership enables us to fully support the procurement preferences of our customers while simultaneously enabling us to focus on the higher gross margin activities of design and software enablement. Moving to our go-to-market partners, it's important to note that over 65% of our sales activity came with or through our channel partners in 2023. These are partners that extend our reach into certain verticals or geographies where they have a particularly strong presence.

We have seen and expect to continue to see momentum with our channel partners.

We're delighted with our partnership with Columbia attack or CP or long term local contract manufacturer, who have assembled every one of the evolve express systems that have rolled off the assembly line in.

In 2023, we expanded our partnership with CP, who has now become a distributor of evolve Express. This expanded partnership enables us to fully support the procurement preferences of our customers, while simultaneously, enabling us to focus on the higher gross margin.

Activities of design and software enablement.

Moving to our go to market partners, it's important to note that over 65% of our sales activity activity came with or through our channel partners in 2023.

These are partners that extend our reach into certain verticals or geographies, where they have a particularly strong presence. We expect to continue to see strong activity with Johnson controls securitize technology and dozens of other regional partners like Alliance Technology Group and stone security.

Peter Gustav George: We expect to continue to see strong activity with 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. Finally, we're delighted with the early progress we've had together with Refo, one of the largest service delivery organizations in the world. That partnership enables us to expand and scale our own customer service program by leveraging RICO's well-established and comprehensive service advantage program. The RECO partnership provides our customers with increased field service resources, expanded technical support, and expedited part availability. Turning to slide 14. I want to dig into the demand drivers in our end markets, starting with education, which is made up of nearly 130,000 schools across the nation. Gun violence in schools remains a top issue for district leadership, school administrators, parents, teachers, and students. The Center of Disease Control and Prevention reports that firearm-related activities have surpassed car accidents as the leading cause of death among children and adolescents.

These relationships will be central to our plans to scale over time.

Yes.

Finally, we are delighted with the early progress we've had together with repo one of the largest service delivery organizations in the world.

That partnership enables us to expand and scale our own customer service program by leveraging <unk>, well established and comprehensive service advantage program.

The Rico partnership provides our customers with increased field service resources expanded technical support.

And expedited part availability.

Turning to slide 14.

I want to dig into the demand drivers in our end markets, starting with education, which is made up of nearly 130000 schools across the nation.

Gun violence in schools remains a top issue for district leadership school administrators parents teachers and students.

The center of disease control and prevention reports that firearm related activities have surpassed car accidents as the leading cause of death, among children and adolescence. Additionally, when considering the impact of children experiencing nonfatal injuries and the IB.

Peter Gustav George: Additionally, when considering the impact on children experiencing non-fatal injuries and the increasing levels of anxiety among our youth, the resulting pain and emotional distress are poised to have an enduring effect across the nation. School administrators are also turning to advanced security solutions to improve teacher retention without using outdated legacy metal detectors and the potential negative impact they can have on the overall learning environment. We're on a mission to improve the safety of young people, and for us, that starts with students and their schools. This continues to be our number one end market and represented about 45% of our business in 2023 and 35% of our business in the fourth quarter, which also highlights the seasonal trends that appear to be developing in education.

Increasing levels of anxiety, among our use the resulting pain and emotional distress are poised to have an enduring effects across the nation.

School administrators are also turning to advanced security solutions to improve teacher retention without using outdated legacy metal detectors and the potential negative impact they can have on the overall learning environment.

We're on a mission to improve the safety of young people.

And for us that starts with students and their schools.

This continues to be our number one end market and represented about 45% of our business in 2023, and 35% of our business in the fourth quarter, which also highlights the seasonal trends that appear to be developing in education.

Peter Gustav George: We can now be found in over 800 school buildings and are screening, on average, 600,000 school visitors every day. We are now in 20 of the 100 largest school districts in the country. We're pleased to welcome the Jefferson County School District in Kentucky, Belmont University, the New England Conservatory of Music, the University of Utah, and Windsor Learning Center, among many other new education customers. Thank you. Turning to slide 15.

We can now be found in over 800 school buildings and are now screening on average 600000 school visitors every day.

We can now be found in 20 of the 100 largest school districts in the country.

We're pleased to welcome the Jefferson County School District in Kentucky, Belmont University, the New England Conservatory of music, the University of Utah, and Windsor Learning Center among other many new education customers.

Okay.

Turning to slide 15.

Peter Gustav George: Another major market for Evolv continues to be healthcare, which includes over 6,000 hospitals and where over 70% of workplace violence takes place. Hospital administrators are making investments to enhance patient and staff safety, and we stand well positioned to fill this market need. We added many new healthcare customers in the fourth quarter, including the University of Pennsylvania Medical Center, the Memorial Regional Hospital, and the Shore Medical Center.

Another major market for evolve continues to be healthcare.

<unk> includes over 6000 hospitals, and where over 70% of workplace violence takes place.

Hospital administrators are making investments to enhance patient and staff safety and we stand well positioned to fill this market need.

We added many new health care customers in the fourth quarter, including the University of Pennsylvania Medical Center, The Memorial Regional Hospital and the shore Medical Center. We're pleased to report that we now serve about 300 hospital buildings across the country and are screening almost five.

Peter Gustav George: We're pleased to report that we now serve about 300 hospital buildings across the country and are screening almost 500,000 health care visitors every single day. One more market to highlight here on slide 16 is professional sports, where we continue to transform the guest experience for millions of fans at stadiums, arenas, and ballparks around the country. We enable fans to enjoy a faster, more convenient, and more secure screening process. We are thrilled to have HIT for the cycle in New England sports. Building on our previous wins at the New England Patriots and the Boston Red Sox, we are proud to now provide security screening at the TD North Garden, which, of course, is home to the Boston Bruins and the Boston Celtics.

100000 healthcare visitors every single day.

One more market to highlight here on slide 16 is professional sports.

Where we continue to transform the guest experience for millions of fans at stadiums arenas and ballparks around the country.

We enable fans to enjoy a faster more convenient and more secure screening process.

We are thrilled to have hit for the cycle and new England sports.

Building on our previous wins at the New England Patriots and the Boston Red Sox. We are proud to now provide security screening at the TD North Garden, which of course is home of the Boston Bruins and the Boston Celtics.

Peter Gustav George: We further expanded in the NBA with key wins at the Houston Rockets and the Charlotte Hornets. We also added the T-Mobile Arena, home of the 2023 Stanley Cup champion Vegas Golden Knights. We're excited to have added the 100,000-seat Melbourne Cricket Grounds, which is the largest stadium in the Southern Hemisphere.

We further expanded in the MBA with key wins at the Houston rockets in the Charlotte Hornets. We also added the T Mobile Arena home of the 2023 Stanley Cup Champions Vegas Golden Knights. We're excited to have added 100000 seat Melbourne cricket ground, which is the largest stadium.

In the southern Hemisphere.

Peter Gustav George: We've already deployed there and were used to screen hundreds of thousands of local Taylor Swift fans during the three-day concert stop there earlier this month. That's on top of the close to 2 million Swifties that we screened in 2023 during the North America leg of the AEROS tour. Moving on to slide 17, we are absolutely delighted to announce our recently formed partnership with ASM. Headquartered in Los Angeles, AFM's venue network spans five continents with a portfolio of more than 350 of the world's most prestigious arenas, stadiums, convention and exhibit centers, and performing arts venues.

We've already deployed there and were used to screen hundreds of thousands of local.

Taylor Swift fans during the three day concert stopped their earlier this month, that's on top of the close to 2 million Swift piece that we screened in 2023 during the North America leg of the Arris tour.

Moving on to Slide 17, we are absolutely delighted to announce our recently formed partnership with ASM.

Headquartered in Los Angeles, ASM venue network spanning five continents with a portfolio of more than 350 of the world's most prestigious arenas stadiums convention and exhibit centers and performing arts venues.

Peter Gustav George: We have been selected as ASM's preferred technology provider for patron screening in North America. The partnership represents both our continued leadership in delivering advanced screening for professional sports and entertainment fans and ASM's commitment to creating the best guest experience at its venues around the globe. Evolv Express is currently screening guests at ten ASM global venues in Jacksonville, Houston, Denver, Long Beach, and Ontario, and in California.

We have been selected as the ASM preferred technology provider for patrons screening in North America the.

The partnership represents both our continued leadership and delivering advanced screening for professional sports and entertainment fans and <unk> commitment to creating the best guest experience at its venues around the globe.

Okay.

Of all the express is currently screening guests at 10, ASM global venues in Jacksonville, Houston, Denver Long Beach in Ontario, and in California.

Peter Gustav George: This is in addition to several ASM global venues in the United Kingdom that we began supporting in 2022. We look forward to providing updates on our progress among the 350 plus facilities in the North America portfolio. So, to summarize on slide 18, we're reporting strong fourth-quarter results, highlighted by record revenues, ARR, and RPO. We've been seeing growing market awareness and strong new customer acquisition activity. We've continued to see evidence of the leverage in our business model.

This is in addition to several ASM global venues in the United Kingdom that we began supporting in 2022.

We look forward to providing updates on our progress among the 350 plus facilities in the North America portfolio.

So to summarize here on slide 18.

We're reporting strong fourth quarter results highlighted by record revenues.

And our Po.

We've been seeing a growing market awareness and strong new customer acquisition activity.

We've continued to see evidence of the leverage in our business model and.

Peter Gustav George: And we have exciting growth plans for 2024, which is focused on again delivering market-leading growth in ARR. We expect adjusted gross margins of about 60% in 2024, which, combined with accelerating leverage from our investments, puts us in an excellent position to reach positive adjusted EBITDA in the first half of 2025 without the need for any additional capital. With that, I will turn things over to Mark, who will take you through our financial results and our outlook.

And we have an exciting growth plans for 2024, which is focused on again delivering market leading growth in <unk>.

We expect adjusted gross margins of about 60% in 2024, which combined with accelerating leverage from our investments puts us in an excellent position to reach positive adjusted EBITDA in the first half of 2025 without the need for any additional capital.

With that let me turn things over to Mark who will take you through our financial results and our outlook Mark.

Mark Donohue: Thanks Peter and good afternoon everyone. I'm going to review our fourth quarter results in more detail and walk through our thoughts on 2024. I will also provide an update on the regulatory front. I will start with slide 20.

Thanks, Peter and good afternoon, everyone I'm going to review, our fourth quarter results in more detail and walk through our thoughts on 2024.

I will also provide an update on the regulatory front I'll start here on slide 20.

Mark Donohue: As Peter mentioned, total revenue was $21.8 million, up 4% year over year. For the year, total revenue was $80.4 million, which compared favorably to our earlier guidance. Our revenue growth was again fueled by strong new customer acquisition activity and the rapid growth of revenue-generating subscriptions. We are particularly delighted with the strong growth in our recurring revenues, which represented 65% of our full-year revenues and reached 80% of our fourth quarter revenues. Our total number of revenue-generating subscriptions increased to 4,505 at the end of 2023, compared to 4,014 at the end of Q3. This was the primary driver of strong growth and recurring revenue. Moving to slide 21, annual recurring revenue, or ARR, at December 31, 2023, was $75 million, reflecting growth of 120% year-over-year and 14% sequentially. Remaining performance obligation, or RPO, as of December 31, 2023, was a record $241 million, up 67% year-over-year and 9% sequentially.

As Peter mentioned total revenue was $21 8 million up 4% year over year.

For the year total revenue was $84 million, which compared favorably to our earlier guidance are.

Our revenue growth was again fueled by strong new customer acquisition activity and the rapid growth of revenue generating subscriptions.

We are particularly delighted with the strong growth in our recurring revenues, which represented 65% of our full year revenues and reached 80% of our fourth quarter revenues.

Our total number of revenue generating subscriptions increased to $4505 at the end of 2023 compared to 4014 at the end of Q3. This was the primary driver of strong growth in recurring revenues.

Moving to slide 21 annual recurring revenue or <unk> at December 31, 2023 was $75 million, reflecting growth of 120% year over year and 14% sequentially.

Remaining performance obligation or RVO as of December 31, 2023 was a record $241 million up 67% year over year, a 9% sequentially as we have been sharing with our investors on prior calls we continue to expect the rate of growth in <unk>.

Mark Donohue: As we have been sharing with our investors on prior calls, we continue to expect the rate of growth in RPO to temper as lower-margin hardware revenue begins to come off the P&L and more unit bookings go through the distribution model. We expect the result to be faster growth and recurring revenue and higher overall gross margins for the business, which is exactly what we saw in the fourth quarter. Flipping to slide 22, and moving down the income statement beyond revenue, adjusted gross margin, which excludes stock-based compensation, was 57% in the fourth quarter of 2023, compared to 1% in the fourth quarter of 2022.

Tempur as lower margin revenue hardware revenue begins to come off the P&L and more unit bookings go through the distribution model.

We expect the result to be faster growth in recurring revenue and higher overall gross margins for the business, which is exactly what we saw in the fourth quarter.

Flipping to slide 22, and moving down the income statement beyond revenue adjusted.

Adjusted gross margin, which excludes stock based compensation was 50%, 57% in the fourth quarter of 2023 compared to 1% in the fourth quarter of 2022.

Mark Donohue: Our improved gross profit and gross margin primarily reflect demand for our distributor model, which accounted for about 25 percent of all units booked in the fourth quarter. For the full year, we reported an adjusted gross margin of 45% compared to just 5% in 2022, again reflecting the strength of our distributor model. We continue to expect adjusted gross margins of at least 60% in 2024. Adjusted operating expenses, which exclude stock-based compensation, loss on impairment of equipment, and certain other one-time expenses, were $24.9 million compared to $19.9 million in the fourth quarter of last year and $25.2 million in the third quarter of this year.

Our improved gross profit and gross margin primarily reflect demand for our distributor model, which accounted for about 25% of all units booked in the fourth quarter.

For the full year, we reported adjusted gross margin of 45% compared to just 5% in 2022.

Again, reflecting the strength of our distributor model.

We continue to expect adjusted gross margins of at least 60% in 2024.

Adjusted operating expenses, which exclude stock based compensation loss on impairment of equipment and certain other one time expenses were $24 9 million compared to $19 9 million in the fourth quarter of last year and $25 2 million in the third quarter of this year.

Mark Donohue: We exited the quarter with 293 employees compared to 281 at September 30, 2023, reflecting an increase of 12 FTEs sequentially. Adjusted EBITDA, which excludes stock-based compensation and other one-time items, was negative $9.5 million compared to negative $18 million in the fourth quarter last year. We saw strong improvement throughout the year. Turning to the balance sheet, we ended the quarter with $119 million in cash, cash equivalents, restricted cash, and marketable securities, down from $140 million at the end of Q3 and down from $230 million at the end of last year. Primarily driven by our net loss as well as our fixed asset additions to support the pure subscription business. We encourage investors to review property and equipment on our balance sheet, which is where the cash effectively sits that we invest in Evolv Express Systems and future inventory for our pure subscription customers. Property and Equipment increased by $68 million in 2023. However, all that cash comes back to the company over the underlying subscription terms. This underscores the fundamental difference between cash burn and cash use.

We exited the quarter with 293 employees compared to 281 at September 32023, reflecting an increase of 12 FTE sequentially.

Adjusted EBITDA, which excludes stock based compensation and other one time items was negative $9 5 million compared to negative $18 million in the fourth quarter of last year.

We saw strong improvement throughout the year.

Okay.

Turning to the balance sheet, we ended the quarter with $119 million in cash cash equivalents restricted cash and marketable securities down from $140 million at the end of Q3 and down from $230 million at the end of last year, primarily driven by our net loss as well as our <unk>.

Sixth asset additions to support the pure subscription business.

We encourage investors to review property and equipment on our 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 increased by $68 million in 2023.

All of that cash comes back to the company over the underlying subscription terms. It underscores the fundamental difference between cash burn and cash usage. They are very different in our business.

Mark Donohue: They are very different in our business. I want to take a moment here on slide 23 to remind investors of our expanded partnership with CT and the potential impact on Evolv. CT, which has been our longtime contract manufacturer, became an authorized distributor of Evolv Express in the middle of 2023. Simply put, customers that prefer to purchase the hardware component of Evolv Express can now do so by placing an order with one of our approved reseller partners, which in turn will place a hardware order for Evolv Express directly with CT under a separate reseller agreement.

I want to take a moment here on slide 23 to remind investors that our expanded partnership with <unk>.

And the potential impact for evolve.

<unk>, which has been our long time contract manufacturer became an authorized distributor of evolve express.

In the middle of 2023.

Simply put customers that prefer to purchase the hardware component of evolve express can now do so by placing an order with one of our approved reseller partners, which in turn will place a hardware order for evolve expressed directly with.

Under a separate reseller agreement.

Mark Donohue: So customers don't have to turn to Evolv to purchase the hardware component of their Evolv Express system. Concurrently, the approved reseller partner will place a second order with Evolv for the long-term software subscription contract, which will power the newly purchased Evolv Explorer. The complete order will be distributed by CT. This is an important expansion of our strong relationship and is designed to make it even easier for our customers to procure and deploy Evolv Express directly from our manufacturers. We believe this expanded partnership will enable us to fully support the contractual preferences of our customers, particularly those working with grant resources or who are accustomed to working under the CapEx model. The expected impact of this expanded partnership is highlighted here on slide 24. As investors will note, this effectively moves us away from a direct purchase model and the related full recognition of the bill of materials in the very first month of the customer contract.

So customers don't have to turn to evolve to purchase the hardware component of their evolve express system.

Concurrently the approved reseller partner will place a second order.

Evolve for the long term software subscription contract, which will power the newly purchased evolve express the.

The complete order will be distributed by <unk>.

This is an important expansion of our strong relationship and is designed to make it even easier for our customers to procure and deploy evolve express directly from our manufacturer.

We believe this expanded partnership will enable us to fully support the contractual preferences of our customers, particularly those working with grant resources or who are accustomed to working under a capex model.

The expected impact of this expanded partnership is highlighted here on slide 24.

As investors will note this effectively moves us away from a direct purchase model and the related full recognition of the bill of material and the very first month of the customer contract.

Mark Donohue: This has been a drag to the business, as you can see here, with 5% adjusted gross margin in 2022. However, while we are still very early on in our expanded partnership with CT, we were able to deliver full year adjusted gross margin of 45% in 2023, as we did fewer direct product sales and as more of the revenue transitioned to recurring revenue. We expect recurring revenue to eventually represent about 80% of our total revenue, with the remainder to be largely associated with the very high gross margin hardware license that we will receive from CT. All in all, we expect our overall adjusted gross margins to reach 60% in 2024, with further expansion in the years ahead. I want to share a few comments about how we're thinking about 2024, which is highlighted here on slide 25.

This has been a drag to the business as you can see here with 5% adjusted gross margin in 2022.

While we are still very early on in our expanded partnership with <unk>, we were able to deliver full year adjusted gross margin of 45% in 2023, as we did less direct product sales and as more of the revenue transition to recurring revenue.

We expect recurring revenue to eventually represent about 80% of our total revenue with the remainder to be largely associated with the very high gross margin hardware license fees that we will receive from CP.

All in all we expect our overall adjusted gross margins to reach 60% in 2024 with further expansion in the years ahead.

I wanted to share a few comments about how we're thinking about 2024, which is highlighted here on slide 25.

Mark Donohue: For context, we think the productivity ramp of newly hired customer-facing personnel coupled with developing seasonality trends will lead to a greater percentage of our activity coming in the second half of the year. We are also assuming no significant change in the demand environment because of the work we are doing with the Federal Trade Commission and the Securities and Exchange Commission. We began working with the FTC last year on their inquiry into certain of our marketing practices. We responded to all their information requests in a timely manner early last fall, and we are prepared to support them in any final steps in their review.

For context, we think the productivity ramp of newly hired customer facing personnel, coupled with developing seasonality trends will lead to a greater percentage of our activity coming in the second half of the year.

We are also assuming no significant change in the demand environment because of the work we're doing with the Federal Trade Commission and the Securities and Exchange Commission.

We began working with the FTC last year on their inquiry into certain of our marketing practices.

We responded to all their information requests and requests in a timely manner early last fall and we are prepared to support them in any final steps in their review.

Mark Donohue: We are also working with the SEC on a separate inquiry we received about two weeks ago. We are committed to working with both the FTC and the SEC as they progress through their inquiries and will continue to keep investors up to date on any material developments. So with that, here's how we're thinking about 2024. We are currently modeling full-year revenues of about $115 million in 2024, with about $75 million of that already in hand due to our ending ARR balance as of December 31, 2023. We believe we can exit 2024 with an ARR of between 108 and 112 million.

We are also working with the SEC on a separate inquiry, we received about two weeks ago.

We are committed to working with both the FTC and the FCC is the progress.

As they progress through their inquiries and we'll continue to keep investors up to date on any material developments.

So with that here's how we're thinking about 2024.

We are currently modeling full year revenues of about $115 million in 2024 with about $75 million of that already in hand, due to our ending <unk> balance as of December 31 2023.

We believe we can exit 2024 with <unk> of between $108 million to $112 million.

Mark Donohue: Our models call for adjusted gross margins of about 60% in 2024. We expect to reduce our adjusted EBITDA losses by at least 40% in 2024. We believe we will remain on track to get to positive adjusted EBITDA in the first half of 2025, and when we do, we expect to have cash and marketable securities of more than $75 million. Flipping to the last slide here, slide 26, I want to remind investors of our long-term target operating model, which is focused on delivering on the Rule of 40. This is the same model we shared with investors back at our Analyst Day in May.

Our models call for adjusted gross margins of about 60% in 2024.

We expect to reduce our adjusted EBITDA losses by at least 40% in 2024.

We believe we will remain on track to get to positive adjusted EBITDA in the first half of 2025 and when we do we expect to have cash and marketable securities of more than $75 million.

Flipping to the last slide here Slide 26, I want to remind investors of our long term target operating model, which is focused on delivering on the rule of 40.

This is the same model, we shared with investors back at our analyst day in May.

Mark Donohue: As you can see, we continue to make excellent progress towards our long-term goals. First off, we expect to deliver top-line growth of 30% to 40% annually. And, for all the reasons I just reviewed, we expect adjusted gross margin to reach 60%.

As you can see we continue to make excellent progress towards our long term goals.

First off we expect to deliver top line growth of 30% to 40% annually for.

For all the reasons I just reviewed we expect adjusted gross margin to reach 60%. In fact, we are modeling that here for 2024.

Mark Donohue: In fact, we are modeling that year for 2024. Moving to our investment strategy, we expect to continue to see leverage in R&D. I expect that we will reach our target spend rate of 15 to 20% as early as 2025.

Moving to our investment strategy, we expect to continue to see leverage in R&D I expect that we will reach our target spend rate of 15% to 20% as early as 2025.

Mark Donohue: Sales and marketing is one area that you will continue to see us invest in. Clearly, we are already seeing leverage there, but we are investing in the growth opportunity. Again, I expect most of the hiring we do in 2024 will be focused on our go-to-market function function function function function function function function function function function function function function, Longer term, I expect us to invest about 25 to 30% of revenue in sales and marketing. We made excellent progress in 2023 on leveraging our DNA. We will continue to make very thoughtful investments there as the business demands.

Sales and marketing is one area that you will continue to see us invest in <unk>.

Clearly we are already seeing leverage there, but we are investing in the growth opportunity.

I expect most of the hiring we do in 2024 will be focused on our go to market function.

Longer term I expect us to invest about 25% to 30% of revenue in sales and marketing.

Okay.

We made excellent progress in 2023 on leveraging our G&A spend we will continue to make very thoughtful investments there as the business demands it.

Mark Donohue: I expect us to get that spending level down to 10-12% of revenue over the next few years as we grow into our public company expenses. As you can see from the slide here, we expect, longer term, to be able to deliver adjusted EBITDA margins of at least 10 to 15 percent, which coupled with our top-line growth rate expectations enables us to deliver on the Rule of 40. One final note on profitability. We believe we are in an excellent position to reach positive adjusted EBITDA in the first half of 2025 without the need for additional capital. We are very focused on getting the cash flow to break even.

I expect us to get that spending level down to 10% to 12% of revenue over the next few years as we grow into our public company expenses.

As you can see from the slide here, we expect longer term to be able to deliver adjusted EBITDA margins of at least 10% to 15%.

Which coupled with our topline growth rate expectations enable us to deliver on the rule of 40.

One final note on profitability. We believe we are in an excellent position to reach positive adjusted EBITDA in the first half of 2025 without the need for additional capital. We are very focused on getting to cash flow breakeven.

Brian Norris: With that, I'll turn the call back over to Brian. Thanks, Mark. Kevin, at this time, we'd like to open the call up for Q&A. We're going to ask participants to limit themselves to one question and one follow-up. Thank you. Now, if you have not already done so and you wish to ask a question, please press 1 then 0 on your telephone keypad. You may remove yourself from the cue at any time by repeating the one, https://www.youtube.com/watch?v=Lmjk8u, Standby, first question: Please go ahead. Thank you. This is Hugh for Shawol.

With that I'll turn the call back over to Brian.

Thanks, Mark Kevin at this time, we'd like to open the call up for Q&A, we're going to ask participants to limit themselves to one question and one follow up.

Thank you.

Now if you have not already done so and you wish to ask a question. Please press one to zero on your telephone keypad, you may remove yourself from queue at any time by repeating the London Zero command.

Once against the questions.

Please press one then zero.

Please standby for the first question.

Yeah.

First question is from the line of saw in now.

TD Cowen. Please go ahead.

Hugh Devon Cunningham: Thanks for taking my question. You know, first of all, congratulations on the quarter. You did what you said you were going to do.

Sure. Thank you this issue for <unk>. Thanks for taking my question.

First of all congratulations on the quarter you did what you said you were going to do.

Hugh Devon Cunningham: And Mark, thank you for, actually all of you, thank you for this presentation. Those numbers are very helpful. I do have a couple questions on a couple areas, so one and one follow-up. The first one is, can you talk a little bit about the diligence that your customers do when they engage?

And Mark Thank you for actually all of you. Thank you for this presentation at those numbers are very helpful.

I do have a couple of questions on <unk>.

Couple of areas. So one and one follow up the first one is can you talk a little bit about.

The diligence that your customers do.

When they engage us.

Peter Gustav George: Sure. Hugh, thanks for your call and your comments. So, as you know, our customers are, the decision makers are former law enforcement, sometimes former three-letter agency, very experienced security professionals, and we work directly with them. We bring them to venues that are like-minded venues like theirs. We talk to them fully transparently about what our system can and can't do. We normally do a proof of concept with a customer so they can see it in their venue. And almost always, those same customers do their own testing.

Sure.

<unk>.

Thanks for your call and your comments.

So as you know our customers.

Are the decision makers are former law enforcement.

Sometimes former three letter agency very experienced security professionals.

And we work directly with them, we bring them to venues that are like minded venues like theirs.

We talk to them fully transparently about what our system can and can't do we normally do a POC with the customer so they can see it in their venue and almost always those same customers do their own testing they understand their own threats and they do their own testing so that typically.

Peter Gustav George: They understand their own threats, and they do their own testing. So that's typically how we sell to and work with our customers in partnership. And the typical sale cycle is 60 to 90 days, depending on who it is.

How we sell to win work with our customers and partnership and the typical sales cycle is 60 to 90 days, depending on who it is.

Yes.

Peter Gustav George: Okay, thank you. One additional question, my follow-up is related to, it appears that you're getting much more comfortable with the sensitivity and performance of the Express because, previously, you know, you guys were focused, and you're still focused on weapons and devices that can cause mass casualty events. On this call, you've been talking a bit about sort of an increased focus on knives. Can you talk a little bit about what's driving that? So look, the use case for us, Hugh, hasn't changed. We're still about mass casualty events. Having said that, threats that our customers care about are not just guns but sometimes weapons, such as large knives.

Okay. Thank you one additional question my follow up is related to it appears that youre getting much more comfortable.

With the sensitivity and performance of the express because previously.

You guys were focused and you're still focused on.

Weapons and devices that can cause mass casualty events and on this call you've been talking a bit about <unk>.

<unk>.

An increased focus on nice.

Can you talk a little bit about what's what's driving that.

So look the use case for us who hasnt changed were still.

About mass casualty events, having said that you know threats that our customers care about are not just guns, but sometimes weapons large knives. So we've been.

Peter Gustav George: So we've been trying to increase the accuracy of our system. And as you know, we came out with a new sensitivity called Level G, which has helped with that. Having said that, we've said many, many times that the best practice for security is a layered approach. We're just one part of that layer. There is no perfect prevention or perfect solution.

Trying to increase the accuracy of our system and as you know we came out with a new sensitivity call level G, which has helped with that having said that we've said many many times that a best practice for security is a layered approach.

We're just one part of that layer. There is no perfect prevention are perfect solution.

Peter Gustav George: So we work, and all of our customers who are security professionals that have been in the security business know that. When they put in technology like ours, they're buying down risk, but there's nothing perfect. Great. Thanks, Peter. I'll jump back in the queue.

So we work in all of our customers for security professionals that have been in the security business know that when they put in technology like ours, they are buying down risk, but theres nothing perfect.

Great. Thanks, Peter I'll jump back into queue.

Operator: Thank you. Our next question is from the line of Mike Latimore. Please go ahead.

Thank you.

Next question is from the line of Mike Latimore Northland. Please go ahead.

Michael James Latimore: Great, thanks very much. Yeah, congrats on another excellent quarter here, on the system, class change, and what kind of license fee would you get? Yeah, so thanks, Mike. We're in the midst of kind of running down our first systems, you know; we're kind of at the final stage of building the last ones. By the middle of the year, I would say, starting in April but probably by the beginning of Q2, we'll be building the newly designed system in earnest. So that'll come out in approximately the middle of the year. You know, it's about, if I was to kind of ballpark it, it's about 95% the same functionality.

Great. Thanks, very much and congrats on another excellent quarter here.

Alright.

On the system.

It's kind of redesign enhancement when do you think the next kind of hardware system will be out.

Cost.

Cost change in and what kind of license fee or do you get them.

Yeah. So thanks, Mike.

You know we're in the midst of Av.

Kind of running down our first system as you know we're kind of at the final stage of building the last ones.

By the middle of the year I would say starting in April, but but but probably by the beginning of Q2 will be building the.

The new the newly designed system and artist so that'll come out.

Approximately the middle of the year.

It's about.

Just to kind of ballpark, it's about 95% the same functionality. We've added a few bells and whistles to it like a three D camera and whatnot, but it's largely the same product just with just with the redesign and cost down and over the past three years, we've learned a lot in the field about the system So really changed.

Mark Donohue: We've added a few bells and whistles to it, like a 3D camera and whatnot, but it's largely, you know, the same product, just with a redesign and lower cost. Over the past three years, we've learned a lot in the field about the system, so we really changed it for quality, modularity, and the ability to service it faster and better. So those are things that'll help us, as well as about I think we'll see probably somewhere in the area of about a third of the cost taken out of the system. And that, you know, that should help us. We'll probably see licenses from our CT relationship go down a little, but we're also thinking about how we might actually push some of that savings onto customers in certain verticals when necessary. And then, in terms of the industrial warehouse category, do you think you will potentially hire a leader to run that? We do!

It for quality modularity, the ability to service it faster and better.

So those are things that will help us as well is about I think we will see probably somewhere in the area of about a third of the costs taken out of the system.

And that that should help us, we'll probably see licenses from our <unk> relationship go go a little but we're also thinking about how we might actually push some of that savings on test customers in certain verticals when necessary.

Got it makes sense.

And then in terms of the industrial warehouse category did.

Did you think you will potentially higher leader to run that this year.

We do we see that as a very very big an emerging vertical that we're starting to see early signs of a really a phenomenal use case. So as you know we have a team of people and education is the vertical we have.

Mark Donohue: We see that as a very, very big and emerging vertical that we're starting to see early signs of really phenomenal use cases. So, as you know, we have a team of people in education. We have a small team in health care, and then a pro sports team.

A small team in healthcare and then approached 14, we think distribution warehouses is going to be the next big vertical for us it's probably not.

Mark Donohue: We think distribution warehouses are going to be the next big vertical for us. It's probably not going to be a big contributor in 2024, but certainly in 2025 and 2026. The TAM is so big, the number of those facilities is so vast, and the use case so important. Think about shifts, worker shifts, and trying to get hundreds or thousands of people in quickly during a new shift.

We're going to be a big contributor in 2024, but certainly in 2025 and 2026th the Tam is so big and the number of those facilities is so vast and the use case, so important think about share.

Shifts worker shifts and trying to get hundreds or thousands of people and quickly in a new shift.

Mark Donohue: You know, we're pretty good at that, so we think it's going to be a really good vertical for us, and we'll probably have somebody on board who knows it really well. Okay, excellent. Congratulations on a great year. Thanks. Thanks, Mike. Next, we've got a line for Chad... Please go ahead.

We're pretty good at that so we think it's going to be a really good good vertical for us and we'll probably have somebody on board who's knows it really well.

Okay excellent.

That's on a great year.

Great. Thanks, Mike Thanks, Mike.

Next we'll go to the line of Chad Bennett.

Craig Hallum. Please go ahead.

Chad Bennett: So, just maybe for Mark, it's good to see the reiteration of very good growth and improvement in EBITDA in the 24 guide. I'm assuming that the unit target of 7,000 units is still obviously the way to think about that, so just confirming that. And then secondarily, just in terms of how—I think you alluded to it in your prepared remarks, but just the linearity of units throughout the year by quarter, I think would—maybe a little bit of color there would be helpful. Thanks, Chad. Thanks for the question. I really appreciate it.

Okay. So just maybe for Mark it's good to see the reiteration of our very good growth and improvement in EBITDA in the 24 guide.

I'm assuming that the unit.

Target of 7000 units is still obviously the way to think about that.

So just confirming that and then secondarily.

Just in terms of how I think you alluded to it in your prepared remarks, but just linearity of units throughout the year by quarter, I think would maybe a little bit of color there would be helpful.

Thanks, Chad Thanks for the question really appreciate it.

Mark Donohue: You know, that's right. That's 7,000 plus units. We're still in that category.

That's right that's.

7000, plus units, where we're still in that category, we're still feeling good about that and I think that sort of connects with the guidance that we gave before so we feel good there.

Mark Donohue: We're still feeling good about that, and I think that sort of connects with the guidance that we gave before. So we feel good there.

Mark Donohue: You know, in terms of linearity of units, I think that, as part of our commentary, we talked about the second half of this year being a little bit stronger than the first half of this year, mostly because of a lot of the investments that we've made in marketing and sales, some of the changes we've made in leadership, and absorbing that. So we've been kind of moving forward with that. In terms of linearity of units, I would say that if we think about them on a quarter-over-quarter basis, I don't expect Q1 to be up much, and it will be relatively flattish in Q1.

In terms of linearity of units I think that as part of our commentary we talked about the second half of this year being a little bit stronger than that in the first half of this year, mostly because of the out of the investments that we've made in marketing and sales.

Some of the changes we've made in leadership and absorbing that.

We.

So we've been kind of moving forward with that in terms of the linearity of the units.

I would say that if we think about them on a quarter over quarter basis, I don't expect Q1 to be up much at relatively flattish in Q1 again, it's it's it's it's not one of the stronger quarters in the year, but as we kind of get into Q2, three and four I do expect that.

Mark Donohue: Again, it's not one of the stronger quarters in the year, but as we kind of get into Q2, 3, and 4, I do expect the units to ramp throughout the year. Okay.

<unk>.

The units to ramp throughout the year.

Okay, and then just on <unk>.

Chad Bennett: And then just because of the nature of how conservative you are in recognizing a net new unit when it's actually installed, I guess, was there, you know, just from a seasonality standpoint, was there any kind of, I don't know how I'd put it, but just timing or pushouts of units from Q4, you know, that will be recognized in Q1, just due to the nature of holidays and days off and stuff like that? Was that, you know, a quantifiable amount, or was it, you know, pretty meaningless? What we've learned in the last couple of years as our business has developed is that Q3 is looking like it's going to be one of our strongest quarters. It has been for the last two years, and it's mostly because education represented 47% of our business in 2023. And a lot of our education customers, their fiscal year ends in June; they place orders. And then, of course, we have most of the summer before school starts to get systems deployed.

Just because of the nature of how conservative you are in recognizing a net new unit when it's actually installed I guess was there just from a seasonality standpoint.

Yes.

Was there any kind of I don't know, how I would put it but just timing or push outs of units from Q4.

That will be recognized in Q1, just due to the nature of nature of holidays in days off and stuff like that it was that quantified quantifiable amount or was it was it.

Meaningless.

What we've learned in the last couple of years as our businesses.

Developed is that Q3 is looking like it's going to be one of our strongest quarters. It has been in the last two years and it's mostly because education represented 47% of our business in 2023.

And a lot of our education customers their fiscal year ends in June they place orders and then of course, we have most of the summer before school starts to get systems deployed so our big deployment quarter looks like us in Q3, and then in Q4 and when we talk about seasonality.

Mark Donohue: So our big deployment quarter looks like it's in Q3. And then in Q4, and when we talk about seasonality, we think the back half of every year is going to be stronger, but Q3 will probably always be stronger than Q4 because we just have more days to deploy because school's out.

We think the back half of every year is going to be stronger, but Q3 will probably always be stronger than Q4, because we just have more days to deploy schools out customers.

Mark Donohue: Customers want education, want us to put the systems in. And then, in Q4, as you mentioned, there are a lot of holidays in Q4 and not a lot of days to deploy because school's in session other than Thanksgiving and Christmas. So that's how we're seeing things going. So it was a bit of a short quarter in Q4 for deployment days.

<unk> want us to put the systems in and then in Q4 as you mentioned, there's a lot of holidays in Q4.

And not a lot of data deployed because schools insertion other than Thanksgiving and Christmas. So that's how we're seeing things going so it was a bit of a short quarter in Q4 for deployment days.

Mark Donohue: And then last one, maybe for Mark, just in terms of how you're thinking about 24 from a subscription versus purchase split. Yeah, you know, we've gotten some traction on the distribution model. You know, I would say coming out of Q4, we were kind of in about the 25% level. I think we're going to continue to track north in Q1 and Q2. It's going to rise. I don't expect it to hit, you know, it'll probably be kind of 40% in the first half of the year and then kind of drive to 50% plus in the back half of the year.

Got it and then last one maybe for Mark just in terms of how Youre thinking about 'twenty four from a subscription versus purchase split.

Yeah, we've gotten some traction in the distribution model, we I would say coming out of Q4, we were kind of in about the 25% level I think we're going to continue that track north.

In Q1, and Q2, it's going to rise I don't expect it to hit.

It will probably be kind of 40% in the first half of the year, and then kind of drive to 15% plus in the back half of the year. So it's going to be a ramp throughout the year.

Chad Bennett: So it's going to be a ramp throughout the year, more bent towards distribution. So for the full year, I'd expect distribution to be 50% or better of our business. Got it. Thanks much.

More bent towards towards distribution.

So for the full year, I would expect distribution to be 50% or better of our business.

Got it thanks, so much nice job on the quarter.

Brett Anthony Knoblauch: Nice job on the quarter. Great, thanks Chad. Thanks Chad. We'll go next to the line of Brett Knoblauch.

Great. Thanks, Jeff Thanks, John.

Well go next in line, Brett Knoblauch Cantor Fitzgerald. Please go ahead.

Brett Anthony Knoblauch: Thanks for taking my question and congrats on the quarter. Maybe it's more a question on seasonality with regard to margin, especially on adjusted EBIT margin. They kind of gave the number of 40% plus growth, you know, this quarter came in a bit better than expected. So, I guess, should we continue to expect the kind of sequential improvements in magnitude that we have seen? Maybe what should we be expecting as you guys look to exit 2024 and go into 2025? Are you talking about the EBITDA margin or the gross margin, Brett?

Thanks for taking my question and congrats on the quarter.

Maybe a quick question on seasonality with regards to margin.

Adjusted EBIT margin that you kind of gave the number of 40% plus growth.

This quarter came in a bit better than expected. So I guess should we.

Can you to expect the kind of sequential improvements in magnitude.

That we have seen and maybe.

Maybe what should we be expecting as you guys look to exit 2024 and go into 2025.

Are you talking about.

The EBITDA margin or the gross margin Bret.

Mark Donohue: Adjusted Able, Yeah, you know, we came out of the year at $9.5 million. I think that, you know, our guidance, based on the $49.8 million, that negative $49.8 million we hit on an adjusted basis, would kind of indicate that we're in about the $30 million category. I think we will see improvement every quarter. You know, that'll happen, that'll happen gradually throughout the year.

Adjusted EBITDA.

Yes, we came out of the year.

At $9 5 million I think that our guidance based on that the $49 $8 million net negative $49 8 million, we hit and on an adjusted basis, what kind of indicate that were in about the $30 million.

Category I think we will see improvement every quarter.

That'll happen that'll happen gradually throughout the year, we're being careful with our expenses, we're expecting revenue to kind of grow in the thematic way throughout the year as well with our <unk> based model and we're still feeling very good about by by the by Q2 of 2025 hitting that EBIT neutral state.

Mark Donohue: We're being careful with our expenses. We're expecting revenue to kind of grow in a thematic way throughout the year as well with our ARR-based model. And we're still feeling very good about hitting that EBITDA neutral state by Q2 of 2025. Perfect. And maybe just one follow-up, just on the, I guess, have you seen any notable impact in any way on the demand customer conversations pipeline? Or would you kind of qualify that as maybe two or, Yeah, it's a little bit early.

Perfect and maybe just one follow up just on the.

At Tc and FTC stuff.

I guess have you seen any notable impact.

Any way to demand customer conversations pipeline.

Or would you kind of quantify that is maybe too early to tell.

Mark Donohue: It's a little bit early on the SEC for us to really have had any customer impact. There have been, we've had a few discussions with customers who want to understand the FTC, but that hasn't really impacted our commercial side. But, you know, there's not a lot more we can say. I mean, we're trying to respect the SEC's process that they're going through right here. So, we can't share a lot of details.

Yeah, it's a little bit early it's a little bit early on the SEC for us that really have had any customer impact. There's been we've had a few discussions with customers who want to understand the FTC, but that hasn't really impacted our commercial side, but theres not a lot more we can say I mean, we're trying to respect.

The SEC process that they're going through alright hair. So we can't share a lot of details, but what we have kind of seen it at the beginning of the stages that.

Mark Donohue: But, you know, what we have kind of seen at the beginning of the stage is that, you know, the SEC inquiry represents, really, it's not a dramatic widening of the regulatory questions that we got from the FTC. So, you know, we're just going to keep going down the path of cooperating with the FTC and the SEC. As you know, in our comments, the FTC was last May, and we gave them what they needed by early fall. So, you know, we've done a lot of work there, and a lot of that effort will be parlayed into the SEC side. Awesome, thanks guys, I really appreciate it. Thank you. We will take one more question at this time. Go ahead.

The SEC inquiry represents really like it's not a dramatic widening of the regulatory questions that we got from the FTC. So we're just going to keep going down the path of cooperating with the FTC and the SEC.

As you know in our comments the FTC was last May and we gave them.

What they needed by by early fall. So we've done a lot of work there and a lot of that a lot of that effort will be will be parlayed into the SEC site.

Awesome. Thanks, guys really appreciate it.

Okay.

Yes.

Okay. We will at this time take one more question.

Unidentified Speaker: Both the education and the health care side, if there's any danger of budgets weakening as maybe COVID-related funding and grants dry up. Yeah, you know, not so much on the health care side, obviously. And, you know, that's where 70% of workplace violence is happening. So we see an opportunity to help our customers there. On education, ESSER funding is drying up this September, so September of 2024. We've already been working with a lot of schools on other funding sources, not just their own operating budgets, but other funding sources, other grants that are available to them to help put systems in like ours in place.

And that is from the line of Martin.

Newsy Lake Street. Please go ahead.

Both the education and the healthcare side, if there is any danger of budgets weakening as maybe COVID-19 related funding in grands dry up.

Okay.

Yeah, not so much on the healthcare, obviously, and that's where 70% of the workplace violence is happening. So we see opportunity to help our customers. There on education Essar funding is drying up. This September so September of 2024, we've already been working with.

A lot of schools on other funding sources, not just their own operating budgets, but other funding sources other brands that are available to them to her.

Help put systems in like ours, So we don't view with being a big impact going forward, it's such an urgent need to keep kids and people say that it's becoming a priority for parents and educators and everybody.

Peter Gustav George: So we don't view it as a big impact going forward. It's such an urgent need to keep kids and people safe that it's becoming a priority for parents and educators and everybody. Okay, and then last question.

Okay and then last question the with your go to market partners curious to see if you are seeing.

Unidentified Speaker: With your go-to-market partners, I'm curious to see if you're seeing your relationship with your partners changing, and that they are perhaps dedicating more people, and more resources to the Evolv product. Yeah, this is a new category. And so selecting channel partners that can work in partnership with us to help create the market is really important. So, you know, we're not trying to find every partner. We're trying to find the ones that understand our story and can offer something in terms of integration to customers that's really helpful with their security posture. So, you know, we see this as a big market opportunity going forward. We've talked before about the TAM being a $20 billion market, and $18 billion is undeveloped. Think about those places that always wanted security. Their only alternative was a piece of legacy technology, a metal detector.

<unk> shipped with your partners changing in that they are perhaps dedicating more people more resources to the <unk> product line.

Yes. This is a new category and so selecting channel partners that can work in partnership with us to help create the market is really important. So we're not trying to find every partner we're trying to find the ones that understand our story that can offer some.

<unk> in terms of integration to customers, that's really helpful with their security posture. So.

We see this as a big market opportunity going forward, we've talked before about the Tam being a $20 billion Tam and 18 billion is undeveloped think about those places that always wanted security, they're only alternative alternative was a legacy technology.

<unk> metal detector, a lot of them did nothing and now Theres technology available that can help.

Peter Gustav George: A lot of them did nothing. And now there's technology available that can help, you know, keep their venues safe in a different way. And people want to be part of that. So, still early days, but there's a lot of work we can do to keep people in places safe. And we like to partner with both systems integrators and channel partners to do that. Thanks for taking my call, Terrific.

Keep their venue safe.

In a different way and people want to be part of that so.

It's still early days, but there's a lot of work we can do to keep people in places safe and we like to partner with both systems integrators and channel partners to do that.

Got it thanks for taking my questions.

Brian Norris: Eric, thank you for that last question, and I thank all of the folks that asked the questions. I'm going to turn the call over to Peter for some closing remarks. Yeah, thanks, Brian.

Terrific Eric Thank you for that last question and thank all of our folks had asked the question I'm going to turn the call over to Peter for some closing remarks, yes, thanks, Brian and thanks, everybody for for joining us today and joining our mission as a company.

Peter Gustav George: Thanks, everybody, for joining us today and joining our mission as a company. Look, we're really happy with our strong results in Q4. We had record revenue, record ARR, and record RPO. We're proud of that. We have a growing market awareness, and when we put a system in, people get a chance to experience the difference with Evolv, and that's really, really helpful, and it's a force-multiplying effect around that brand awareness. We continue to see growing leverage in our business model, which is really helpful. So, you know, as we think about, you know, 2024, we're going to continue to grow our ARR. It's a great indicator of the success of our business. We continue to see gross margins in the 60% range.

We're really happy with our strong results in Q4, we had record revenue record <unk> and a record ARPA. We're proud of that we have a growing market awareness when we put a system in people get a chance to experience the difference with evolve and that's really really helpful and it's a fourth multiple.

Line effect around that that brand awareness, we continue to see growing leverage in our business model, which is really helpful. So as we think about 2024, we're going to continue to grow our <unk>.

Great indicator of the success of our business, we continue to see gross margins in the 60% range, we're going to get accelerating leverage from all the investments, we're making and as I mentioned earlier, we see a well lit path to positive adjusted EBITDA with no additional capital.

Peter Gustav George: We're going to get accelerating leverage from all the investments we're making, and as I mentioned earlier, you know, we see a well-lit path to positive adjusted EBITDA with no additional capital this year. So we're looking forward to this year and communicating with all of you on our progress, and we thank you, everyone, for attending tonight. Thank you everyone for joining today's conference, com. Now... We're sorry, your conference is ending now. Please hang up.

This year. So we're looking forward to this year and communicating with all of you on our progress and we thank you everyone for attending Tonight.

Okay.

Thank you everyone for joining today's conference. This does conclude your conference.

May now disconnect have a good day.

Yeah.

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