Q2 2024 Evolv Technologies Holdings Inc Earnings Call

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Operator: Your conference will begin momentarily; please continue to hold. .

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Brian Norris: I am 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 results for the second quarter of 2024, as well as our business outlook for the remainder of the year. This press release has been filed with the SEC and is also available on the IR section of our website. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker Change: I'm joined here today by Peter George Our President and Chief Executive Officer, and Mark Donohue, Our Chief Financial Officer.

Speaker Change: This afternoon. After the market closed we issued a press release announcing our results for the second quarter of 2024 as well as our business outlook for the remainder of the year.

Speaker Change: This release has been furnished with the SEC and is also available on our IR section of our website.

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 obtain new customers and retain existing customers, demand for our products and offerings, our expectations regarding outcomes of any legal proceedings, including regulatory inquiries, 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.

Speaker Change: 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. 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.

Brian Norris: Actual events or financial results may differ materially 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 20, check that, December 31, 2023, filed with the SEC on February 29, 2024, and our quarterly report on Form 10-Q for the three months ended June 30, 2024, which we filed with the SEC earlier today. Forward-looking statements made today represent our views as of August 8th, 2024.

Speaker: Our potential for growth and ability to obtain new customers and retain existing customers, demand for our products and offerings, our expectations regarding outcomes of any legal proceedings, including regulatory inquiries, and our ability to meet our business outlook.

Speaker Change: And ability to obtain new customers and retain existing customers demand for our products and offerings, our expectations regarding outcomes of any legal proceedings, including regulatory inquiries and our ability to meet our business outlook.

Speaker: 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 because of a number of risks and uncertainties, including, without limitation, the risk factors set forth under the caption Risk Factors in our annual report on Form 10-K for the year-ended December 31, 2023, filed with the SEC on February 29, 2024, and our quarterly report on Form 10-K for the three months ended June 30, 2024, which we filed with the SEC earlier today.

Speaker Change: All forward looking statements are subject to material risks uncertainties and assumptions some of which are beyond our control.

Speaker Change: Actual events or financial results may differ materially 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 20 check that December 31, 2023 filed with the SEC on February 29, 2024, and our quarterly re.

Speaker Change: Port on Form 10-Q for the three months ended June 32020 for which we filed with the SEC earlier today.

Speaker: Forward-looking statements made today represent our views as of August 8, 2024. Although we believe 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 maybe required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.

Speaker Change: The forward looking statements made today represent our views as of August eight 2024, although we believe the expectations reflected in these statements are reasonable we cannot guarantee that future results performance or the events and circumstances.

Brian Norris: Although we believe 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.

Speaker Change: It's collected in our forward looking statements will be achieved or will occur.

Speaker Change: As may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.

Speaker: Our commentary today will also include non-GAAP financial measures, which we believe provide additional insight for investors. These measures should not be considered in isolation from, or as a substitute for financial information prepared in accordance with generally accepted accounting principles. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA, adjusted earnings, and adjusted earnings per diluted share.

Brian Norris: Our commentary today will also include non-GAAP financial measures, which we believe provide additional insight for investors. However, these measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA, adjusted earnings, and adjusted earnings per diluted share. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies.

Speaker Change: Our commentary today will also include non-GAAP financial measures, which we believe provide additional insight for investors. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. These measures include adjust.

Speaker Change: Did gross profit adjusted gross margin adjusted operating expenses adjusted operating income adjusted EBITDA adjusted earnings and adjusted earnings per diluted share reckon.

Speaker: Reconciliation between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies.

Speaker Change: Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today.

Speaker Change: Please note that our definition of these measures may differ from similarly, titled metrics presented by other companies.

Speaker: We will be discussing such key metrics as inner-recurring revenue or ARR, remaining performance obligation, or RPO, deployment activity, and total number of subscriptions, each of which we believe is helpful to investors in understanding the progress that we are making as a business.

Brian Norris: We will be discussing such key metrics as inter-recurring revenue, or ARR, remaining performance obligation, or RPO, deployment activity, and total number of subscriptions, each of which we believe is helpful to investors in understanding the progress that we are making as a business. With that, I'd like to turn the call over to Peter.

Speaker Change: We'll be discussing such key metrics is annual recurring revenue or <unk>.

Speaker Change: <unk> performance obligation or RP O deployment activity and total number of subscriptions each of which we believe is helpful.

Peter George: To investors in understanding the progress that we're making as a business with that I'd like to turn the call over to Peter Peter.

Speaker: With that, I would like to turn the call over to Peter.

Peter George: Thank you, Brian. And thanks, everyone, for joining us today. I am going to spend a few minutes on our Q2 results and the key trends we are seeing in the business.

Peter George: Thank you, Brian, and thanks to everyone for joining us today. I'm going to spend a few minutes on our Q2 results and the key trends we're seeing in the business. Mark will then walk through our financial results in more detail, as well as our outlook for the remainder of 2024. Revenue in the second quarter was a record $25.5 million, up 29% year over year and 18% sequentially, reflecting strong new customer acquisition activity, continued expansion from our installed customer base, and growth in subscriptions of Evolv Express. We added 84 new customers in Q2 and now serve over 800 customers across 10 key vertical markets. This is the highest number of new customers in a quarter since the fourth quarter of 2022.

Peter George: Thank you, Brian and thanks to everyone for joining us today.

Peter George: ARR grew to 89 million as of June 30, 2024, which was up about 64% year-over-year and 8% sequentially. Adjusted gross margin expanded to 58% in Q2 compared to 38% in Q2 of last year. This is largely attributable to the accelerated adoption of the distribution subscription model we introduced last year, which has resulted in a significant shift to recurring revenue. I'll touch more on this in a few moments.

Peter George: I'm going to spend a few minutes on our Q2 results and the key trends, we're seeing in the business.

Peter George: Mark will then walk through our financial results in more detail, as well as our outlook for the remainder of 2024. Revenue in the second quarter was a record, 25.5 million, up 29% year over year, and 18% sequentially, reflecting strong new customer acquisition activity, continued expansion from our installed customer base, and growth in subscriptions of evolved express. We added 84 new customers in Q2, and now serve over 800 customers across 10 key vertical markets. This is the highest number of new customers in a quarter since the fourth quarter of 2022. ARR grew to 89 million as of June 30, 2024, which was up about 64% year over year, and 18% sequenced.

Peter George: Mark will then walk through our financial results in more detail as well as our outlook for the remainder of 2024.

Peter George: We activated 441 new multi-use descriptions of Evolv Express in Q2, compared to 377 in Q1. We believe this is an encouraging bounce back on this key metric. Evolv Express was used to screen, on average, nearly 3 million visitors a day in Q2.

Mark Donohue: Revenue in the second quarter was a record $25 5 million up 29% year over year, and 18% sequentially, reflecting strong new customer acquisition activity continued expansion from our installed customer base and growth in subscriptions of evolve Express.

Speaker Change: We added 84, new customers in Q2, and now serve over 800 customers across 10 key vertical markets.

Peter George: This is the highest number of new customers in the quarter since the fourth quarter of 2022.

Peter George: A R. R grew to $89 million as of June 32024.

Speaker Change: It was up about 64% year over year and 8% sequentially.

Peter George: A just a gross margin expanded to 58% in Q2 compared to 38% in Q2 of last year. This is largely attributable to the accelerated adoption of the distribution subscription model we introduced last year, which has resulted in a significant shift to reoccurring revenue. I'll touch more on this in a few moments. We activated 441 new multi-use subscriptions of Evolv Xpress in Q2 compared to 377 in Q1. We believe this is an encouraging bounce back on this key metric. Evolv Xpress was used to screen, on average, nearly 3 million visitors a day in Q2. Our customers are using Evolv Xpress to tag on average more than 500 firearms every single day.

Speaker Change: Adjusted gross margin expanded to 58% in Q2 compared to 38% in Q2 of last year.

Speaker Change: This is largely largely attributable to the accelerated adoption of the distribution subscription model. We introduced last year, which has resulted in a significant shift to reoccurring revenue I'll touch more on this in a few moments.

Speaker Change: We activated 441, new multiyear subscriptions of evolve expressed in Q2 compared to 377 in Q1.

Speaker Change: We believe this is an encouraging bounce back on this key metric.

Speaker Change: Although I have expressed was used to screen on average nearly 3 million visitors a day in Q2.

Speaker Change: Our customers are using our Baas express to tag on average more than 500 firearms every single day.

Peter George: We continued to demonstrate the leverage in our business model and delivered adjusted EBITDA of negative 8 million compared to negative 14 million a year ago. We believe we're continuing our steady march to reaching positive adjusted EBITDA by Q2 of 2025.

Speaker Change: We continued to demonstrate the leverage in our business model and delivered adjusted EBITDA of negative $8 million compared to negative $14 million a year ago.

Speaker Change: We believe we're continuing our steady march to reaching positive adjusted EBITDA by Q2 of 2025.

Peter George: I want to turn and discuss the key drivers we're seeing in the business. I'll start with the three key focus areas we discuss on our last earnings call. Number one, building installation backlog. Two, driving accelerated adoption of our distribution model. And three, improving overall sales execution. First, building installation backlog refers to booking more units in a quarter than we install, which enables us to improve the overall predictability and efficiency of the business. We're pleased to report that we continue to make very good progress on this initiative, which in turn helps us drive increased visibility. Second, the accelerated adoption of our distribution model continues to be the single greatest driver to gross margin expansion because it reduces one-time product revenue, shifts more revenue to reoccurring, and adds more high margin license fees.

Peter George: Our customers are using Evolv Express to tag, on average, more than 500 firearms every single day. We continue to demonstrate the leverage in our business model and deliver an adjusted EBITDA of negative $8 million compared to negative $14 million a year ago. We believe we're continuing our steady march to reaching positive adjusted EBITDA by Q2 of 2025. Now, I want to turn and discuss the key drivers we're seeing in the business. I'll start with the three key focus areas we discussed on our last earnings call. Number one: building installation backlogs.

Speaker Change: I wanted to turn and discuss the key drivers we're seeing in the business I'll start with the three key focus areas. We discussed on our last earnings call number one building installation backlog to driving accelerated adoption of our distribution model and three improving overall.

Peter George: Two, driving accelerated adoption of our distribution model, and three, improving overall sales execution. First, building installation backlog refers to booking more units in a quarter than we install, which enables us to improve the overall predictability and efficiency of the business.

Speaker Change: Sales execution.

Speaker Change: First building installation backlog refers to booking more units in the quarter, then we install which enables us to improve the overall predictability and efficiency of the business.

Peter George: We're pleased to report that we continue to make very good progress on this initiative, which in turn helps us drive increased visibility. Second, the accelerated adoption of our distribution model continues to be the single greatest driver of gross margin expansion because it reduces one-time product revenue, shifts more revenue to recurring, and Asmore High Margin License Fees. I am really pleased to report that over 40% of units booked in Q2 were via the distribution model, which is double what we saw in Q1.

Speaker Change: We're pleased to report that we continue to make very good progress on this initiative, which in turn helps us drive increased visibility.

Speaker Change: Second the accelerated adoption of our distribution model continues to be the single greatest driver to gross margin expansion because it reduces onetime product revenue shift.

Speaker Change: Shifts more revenue to reoccurring.

Speaker Change: And adds more high margin license fees.

Peter George: I am really pleased to report that over 40% of units booked in Q2 were via the distribution model, which is double what we saw in Q1. And finally, we're making good progress from some of the actions we initiated to improve overall sales execution. This includes enhancing demand generation efforts, expanding our pipeline, driving greater brand awareness through initiatives like our Evolve and Action Stadium Tour program, and working with our partners to drive stronger channel partner effectiveness. A common way to measure sales execution is, of course, linearity or the pace of the unit bookings throughout the quarter.

Speaker Change: I am really pleased to report that over 40% of units booked in Q2 were via the distribution model, which is double what we saw in Q1.

Speaker Change: Yes.

Peter George: And finally, we're making good progress on some of the actions we initiated to improve overall sales execution. This includes enhancing demand generation efforts, expanding our pipeline, driving greater brand awareness through initiatives like our Evolv in Action Stadium Tour Program, and working with our partners to drive stronger channel partner effectiveness. A common way to measure sales execution is, of course, linearity or the pace of unit bookings throughout the quarter.

Speaker Change: And finally, we're making good progress on some of the actions we initiated to improve overall sales execution. This includes enhancing demand generation efforts, expanding our pipeline driving grand greater brand awareness through initiatives like our evolve in action Stadium Tour program.

Speaker Change: And working with our partners to drive stronger channel partner effectiveness.

Speaker Change: A common way to measure sales execution is of course linearity or the pace of the unit bookings throughout the quarter.

Peter George: We're pleased to report that our linear linearity improves significantly in Q2, which in turn makes everything from bookings to shipments to buildings to collect. Rations run much more efficiently. It also improves predictability in future quarters and raises our overall confidence. Moving to our go-to-market partners, approximately 70% of our unit activity came with or screw our channel partners in Q2. These are partners that extend our reach in certain verticals or geographies where they have a particularly strong presence. We saw a particularly strong activity with Motorola, which was our most active partner in the quarter and with whom we had the most book units since Q4 of 2022.

Peter George: We're pleased to report that our linearity improved significantly in Q2, which in turn makes everything from bookings to shipments to billings to collections run much more efficiently. It also improves predictability in future quarters and raises our overall confidence. Moving to our go-to-market partners, approximately 70% of our unit activity came with or through our channel partners in Q2. These are partners that extend our reach in certain verticals or geographies where they have a particularly strong presence.

Speaker Change: We're pleased to report that our linear at linearity improved significantly in Q2, which in turn makes everything from bookings to shipments to billings to collections run much more efficiently.

Speaker Change: It also improves predictability in future quarters and raises our overall confidence.

Speaker Change: Moving to our go to market partners, approximately 70% of our unit activity came with or through our channel partners in Q2.

Speaker Change: These are partners that extend our reach in certain verticals or geographies, where they have a particularly strong presence.

Peter George: We saw particularly strong activity with Motorola, which was our most active partner in the quarter and with whom we had the most booked units since Q4 of 2022. In fact, unit bookings with Motorola were up 196% year over year in Q2 and 46% in the first half of 2024 compared to the first half of 2023.

Speaker Change: We saw particularly strong activity with Motorola.

Speaker Change: Which was our most active partner in the quarter and with whom we had the most.

Speaker Change: Units since Q4 of 2022.

Peter George: In fact, unit bookings with Motorola were up 196% year over year in Q2 and 46% in the first half of 2024 compared to the first half of 2023. We continue to ramp our marketing, demand generation efforts with partners and are seeing a notable uptick in partner registration opportunities. We expect to continue to see strong activity with Motorola, Johnson Controls, Securitas Technology, and Alliance Technology Group. These relationships will be central to our plans to scale over time.

Speaker Change: In fact unit bookings with Motorola were up 196% year over year in Q2, and 46% in the first half of 2024 compared to the first half of 2023.

Peter George: We continue to ramp up our marketing demand generation efforts with partners and are seeing a notable uptick in partner registration opportunities. We expect to continue to see strong activity with Motorola, Johnson Controls, Securitas Technology, and Alliance Technology Group. These relationships will be central to our plans to scale over time. We are pleased to report that we again saw very strong renewal activity. Of the 12 Evolv Express systems that were up for renewal in Q2, only three did not renew, and one was due to customer-backed bankruptcy.

Speaker Change: We continue to ramp our marketing demand generation efforts with partners and are seeing a notable uptick in partner registration opportunities. We expect to continue to see strong activity with Motorola Johnson controls securitized technology and Alliance Technology group.

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

Peter George: We are pleased to report that we again saw very strong renewal activity. Of the 12 evolved express systems that were up for renewal in Q2, only three did not renew, and one was due to customer bankruptcy. While we have limited renewal history, our earliest customers are generally entering in either a one- or two-year renewal contract. We have about 60 units up for renewal in the second half of the year, and while it's still early in the process, we expect to see strong renewal trends continuing. Nothing speaks more to the confidence and value that our customers realize and evolve than renewing a subscription contract.

Speaker Change: We are pleased to report that we again saw very strong renewal activity.

Speaker Change: After 12 evolve express systems that were up for renewal in Q2, only three did not renew and one was due to customer back bankruptcy.

Peter George: While we have limited renewal history, our earliest customers are generally entering into either a one or two year renewal contract. We have about 60 units up for renewal in the second half of the year, and while it's still early in the process, we expect... to see strong renewal trends continuing. Nothing speaks more to the confidence and value that our customers realize in Evolv than renewing a subscription contract. We again saw a strong bookings contribution from existing customers, which we believe provides validation of customer trust and confidence.

Speaker Change: While we have limited renewal history. Our earliest customers are generally entering in either a one or two year renewal contract.

Speaker Change: We have about 16 and this is up for renewal in the second half of the year and while it's still early in the process we expect.

Speaker Change: To see strong renewal trends continuing.

Speaker Change: Nothing speaks more to the confidence and value that our customers realize that evolve then renewing a subscription contract.

Peter George: We again saw strong bookings contribution from existing customers, which we believe provides validation of customer trust and confidence. We're pleased to report that 45% of our booked ARR in Q2 was from existing customers compared to 37% in Q2 of 2023. These are customers that have thoroughly tested and deployed our technology and have made the decision to expand their deployments.

Speaker Change: We again saw strong bookings contribution from existing customers, which we believe provides validation of customer trust and confidence.

Peter George: We're pleased to report that 45% of our booked ARR in Q2 was from existing customers compared to 37% in Q2 of 2023. These are customers that have thoroughly tested and deployed our technology and have made the decision to expand their deployment. I want to turn to the trends we're seeing in our end markets, starting with education. First off, we are absolutely thrilled to have welcomed 28 new education customers in Q2, nearly double the number of education customers we added in Q1.

Speaker Change: We're pleased to report that 45% of our book a RR in Q2 was from existing customers compared to 37% in Q2 of 2023.

Speaker Change: These are customers that have thoroughly tested and deployed our technology and have made the decision to expand their deployments.

Peter George: I want to turn to the trends we're seeing in our end markets, starting with education. First off, we are absolutely thrilled to have welcomed 28 new education customers in Q2. Nearly double the number of education customers we added from Q1. Further, we saw a 60% sequential increase in the number of above expressed units sold to education customers in Q2. Very, very strong growth here. Our education customer selected our distribution subscription model for about 60% of the units in the vertical in Q2. We continue to see some of the largest school districts face their deployments over multiple quarters.

Peter George: Further, we saw a 60% sequential increase in the number of Evolv Express units sold to education customers in Q2. Very, very strong growth here. Our education customers selected our distribution subscription model for about 60% of the units in the vertical in Q2. We continue to see some of the larger school districts phase their deployments over multiple quarters. So, while we are winning large opportunities, they do not always show up as they are or deploy units in any single quarter.

Speaker Change: I want to turn to the trends, we're seeing in our end markets starting with education.

Speaker Change: First off we are absolutely thrilled to have welcomed 28, new education customers in Q2, nearly double the number of education customers. We added from Q1 <unk>.

Speaker Change: Further we saw a 60% sequential increase in the number of above express units sold to education customers in Q2, very very strong growth here.

Speaker Change: Our education customers selected our distribution subscription model for about 60% of the units in the vertical in Q2.

Speaker Change: We continue to see some of the larger school districts face here deployments over multiple quarters. So while we are winning large opportunities. They do not always show up as they are our or deployed units in any single quarter.

Peter George: So, while we are winning large opportunities, they do not always show up as they are or deployed units in any single quarter. We're also seeing more schools adjust the way they fund security technology in preparation for the expiration of ESSA funding later this year. School boards are finding ways to fund our solution using their operating budgets and capital projects funding. This can make Evolv more embedded in the district standard purchasing motion as opposed to a one-time grant. We routinely screen between 600 and 700,000 students, teachers, administrators, and other school visitors every day, compared to about 250,000 a day in the second quarter of last year.

Peter George: We're also seeing more schools adjust the way they fund security technology in preparation for the expiration of ESSER funding later this year. School boards are finding ways to fund our solution using their operating budgets and capital project funding. This can make Evolv more embedded in the district standard purchasing motion as opposed to a one-time grant. We routinely screen between 600,000 and 700,000 students, teachers, administrators, and other school visitors every day, compared to about 250,000 a day in the second quarter of last year. We are proud to be deployed in 22 of the 100 largest school districts in the country and over 1,000 school buildings.

Speaker Change: We're also seeing more schools adjust the way they fund the security technology in preparation for the exploration of Essar funding later this year.

Speaker Change: School boards are finding ways to fund our solution using their operating budgets and capital projects funding.

Speaker Change: This can make evolved more embedded in the district standard purchasing motion as opposed to a one time grant.

Speaker Change: We routinely screen between 600 700000 students teachers administrators and other school visitors everyday compared to about 250000, a day in the second quarter of last year.

Peter George: We're proud to be deployed in 22 of the 100 largest school districts in the country in over 1,000 school buildings.

Speaker Change: We're proud to be deployed in 22 of the 100 largest school districts in the country and over a thousand school buildings.

Peter George: Our healthcare market remains robust, with about a dozen new customers added in Q2. We now operate in over 400 hospital buildings nationwide. We continue to build out and implement an integrated approach to marketing to healthcare customers. That is enabling us to support the upstream requirements of not just local hospitals but more and more healthcare systems. We believe that this is paying dividends as we continue to build momentum with some of the largest healthcare systems in the world. We're proud to screen about 700,000 patients, doctors, nurses, healthcare workers, and other hospital visitors every single day, compared to about 300,000 a day last in the second quarter of last year.

Peter George: Our healthcare market remains robust, with about a dozen new customers added in Q2. We now operate in over 400 hospital buildings nationwide. We continue to build out and implement an integrated approach to marketing to health care customers that is enabling us to support the upstream requirements of not just local hospitals but more and more health care systems. We believe that this is paying dividends as we continue to build momentum with some of the largest healthcare systems in the world. We are proud to screen about 700,000 patients, doctors, nurses, healthcare workers, and other hospital visitors every single day, compared to about 300,000 a day in the second quarter of last year.

Speaker Change: Our health care market remains robust with about a dozen new customers added in Q2.

Speaker Change: We now operate in over 400 hospital buildings nationwide.

Speaker Change: We continue to build out and implement an integrated approach to marketing to healthcare customers that is enabling us to support the upstream requirements.

Speaker Change: Just local hospitals, but more and more health care systems.

Speaker Change: We believe that this is paying dividends as we continue to build momentum with some of the largest healthcare systems in the world. We're proud to screen about 700000 patients doctors nurses health care workers and other hospital visitors every single day compared to about $300000.

Speaker Change: A day last in the second quarter of last year.

Peter George: Professional sports and live entertainment continues to be a key vertical for us. As of today, more than 40 teams across five major professional sports leagues across the United States rely on evolved technology as part of a layered approach to venue security. Recent wins include Soldier Field, home of the NFL's Chicago Bears, and the Target Center, which is home of the NBA's Minnesota Timberwolves. We've also secured two recent wins across the NHL ice as the league prepares for the upcoming season. We've added the Honda Center, home of the Anaheim Ducks, and the Canadian Life Center, home of the Winnipeg Jets.

Peter George: Professional sports and live entertainment continues to be a key vertical for us. As of today, more than 40 teams across 5 major professional sports leagues across the United States rely on Evolv technology as part of a layered approach to venue security. Recent wins include Soldier Field, home of the NFL's Chicago Bears, and Target Center, which is home of the NBA's Minnesota Timberwolves.

Speaker Change: Professional sports and live entertainment continues to be a key vertical for us.

Speaker Change: As of today more than 40 teams across five major professional sports leagues across the United States rely on evolve technology as part of a layered approach to venue security.

Speaker Change: Recent wins include soldier field home of the NFL, Chicago Bears and the target Center, which is home of the Mbas, Minnesota Timberwolves. We've also secured two recent wins across the NHL ice as the lead prepares for the upcoming season, we've added the Honda Center.

Peter George: We've also secured two recent wins across the NHL ice as the league prepares for the upcoming season. We've added the Honda Center, home of the Anaheim Ducks, and the Canadian Life Center, home of the Winnipeg Jets. We're excited to welcome these teams and their fans on board. We've also made substantial progress with our partnership with ASM Global, the global operator of live entertainment venues. ASM's venue network spans five continents, with a portfolio of more than 350 of the world's most prestigious arenas, stadiums, conventions, and exhibition centers, and performing arts venues.

Speaker Change: Home of the Anaheim Ducks, and the Canadian Life Center home of the Winnipeg Jets. We're excited to welcome these teams and their fans on board.

Peter George: We're excited to welcome these teams and their fans on board. We've also made substantial progress with our partnership with ASM Global, the global operator of live entertainment venues. ASM's venue network spans five continents, with a portfolio of more than 350 of the world's most prestigious arenas, stadiums, convention, and exhibition centers, and performing arts venues. We are ASM's preferred technology provider for patrons screening in North America. During the second quarter of 2024, we doubled the number of ASM properties we support to 16 sites.

Speaker Change: We've also made substantial progress with our partnership with ASM Global the global operator of live entertainment venues.

Speaker Change: <unk> venue network spans five continents with a portfolio of more than 350 of the world's most prestigious arenas stadiums convention and exhibition centers and performing arts venues.

Peter George: We are ASM's preferred technology provider for patron screening in North America. During the second quarter of 2024, we doubled the number of ASM properties we support to 16 sites. I want to pivot and share some positive news on the innovation front. We recently released a major software update designed to further integrate Evolv Express into our customers' overall security infrastructure. The update introduces new capabilities to the MyEvolv portal and launches our new mobile app, bringing the power of Evolv-connected systems to our customers no matter where they are.

Speaker Change: We are asm's preferred technology provider for patrons screening in North America.

Speaker Change: During the second quarter of 2024, we doubled the number of ASM properties, we support to 16 sites.

Peter George: I want to pivot and share some positive news on the innovation front. We recently released a major software update designed to further integrate Evolv Express into our customers' overall security infrastructure. The update introduces new capabilities to the My Evolv portal and launches our new mobile app, bringing the power of Evolv connected systems to our customers no matter where they are. It provides web and mobile visibility and configuration access to Evolv Express systems and dashboards for visitor flow, alarm statistics, event insights, threat type analysis, and system performance. Key new features include market-specific default dashboards, an intuitive threat map report, automated screening reports, real-time data updates, and extended alert image data access.

Speaker Change: I want to pivot and share some positive news on the innovation front.

Speaker Change: We recently released a major software update designed to further integrate evolve express into our customers' overall security infrastructure.

Speaker Change: The update introduces new capabilities to the my evolve portal and launching our new mobile app, bringing the power of evolve connected system to our customers no matter, where they are at.

Peter George: It provides web and mobile visibility and configuration access to Evolv Express systems and dashboards for visitor flow, alarm statistics, event insights, threat type analysis, and system performance. Key new features include market-specific default dashboards, an intuitive threat map report, automated screening reports, real-time data updates, and extended alert image data access. Because our customers are on long-term subscription contracts with us, they can easily take advantage of these breakthrough capabilities as they are released over time in our powerful cloud-based environment we've invested in over the last several years.

Speaker Change: It provides web and mobile visibility and configuration access to evolve express systems and dashboards for visitor flow alarms statistics.

Speaker Change: Then insights threat type analysis and system performance.

Speaker Change: New features include market specific default dashboards and intuitive threat map report.

Speaker Change: Automation screening reports real time data updates and extended alert image data access.

Peter George: Because our customers are on long-term subscription contracts with us, they can easily take advantage of these breakthrough capabilities as they are released over time to our powerful cloud-based environment we've invested in over the last several years.

Speaker Change: Because our customers are on long term subscription contracts with us they can easily take advantage of these breakthrough capabilities as they are released over time through our powerful cloud based environment, we've invested in over the last several years.

Peter George: One more update on the product development front. We remain on track to introduce by the end of the year new offerings, which will provide additional capabilities to our customers and further extend the Evolv Echo system. We expect the subscription-based products, which could be either physical or digital, to be sold to new and existing customers, expanding the lifetime value of our customers. More to come on that.

Peter George: One more update on the product development front. We remain on track to introduce new offerings by the end of the year that will provide additional capabilities to our customers and further extend the Evolv Echo. We expect the subscription-based product, which could be either physical or digital, to be sold to new and existing customers, expanding the lifetime value of our customers. More to come on that. Before I hand things over to Mark, I'd like to reiterate the importance of our mission.

Speaker Change: One more update on the product development front.

Speaker Change: We remain on track to introduce by the end of the year, new offerings, which will provide additional capabilities to our customers and further extend the evolve ecosystem.

Speaker Change: We expect these subscription based products, which could be either physical or digital to be sold to new and existing customers expanding the lifetime value of our customers more to come on that.

Peter George: Before I hand things over to Mark, I'd like to reiterate the importance of our mission, and this drives us every single day, and that's the democratized security to make the world a safer, more enjoyable place to live, work, learn, and to play. We remain absolutely dedicated to filling this mission while continuing to innovate and achieving our long-term financial goals, which includes delivering 25% revenue growth in 2024, delivering positive adjusted EBITDA in Q2 of 2025, and advancing on the rule of 40.

Speaker Change: Before I hand things over to Mark I'd like to reiterate the importance of our mission.

Peter George: And this drives us every single day, and that's to democratize security, to make the world a safer, more enjoyable place to live, work, learn, and play. We remain absolutely dedicated to fulfilling this mission while continuing to innovate and achieve our long-term financial goals, which include delivering 25% revenue growth in 2024, delivering positive adjusted EBITDA in Q2 of 2025, and advancing on the Rule of 40. With that, I'll turn it over to Mark to present our financial results and our outlook.

Mark Donohue: And this drives US every single day and that is to democratize security.

Mark Donohue: Make the world a safer more enjoyable place to live work learn and to play.

Speaker Change: We remain absolutely dedicated to filling this mission, while continuing to innovate and achieving our long term financial goals, which include delivering 25% revenue growth in 2024, delivering positive adjusted EBITDA in Q2 of 2025 and.

Speaker Change: <unk> on the rule of 40.

Mark Donohue: With that, I'll turn it over to Mark to present our financial results and to our outlook.

Mark Donohue: With that I'll turn it over to Mark to present, our financial results and our outlook Mark.

Mark Donohue: Mark, thanks Peter, and good afternoon everyone. I'm going to review our second quarter results in more detail and then walk through our outlook. As Peter mentioned, total revenue was 25.5 million, up 29% year-over-year. In your recurring revenue or ARR as of June 30, 2024, it was 89 million, reflecting growth of 64% year-over-year. A approximately 83% of revenue in Q224 was recurring, versus 59% in Q223.

Mark Donohue: Thanks, Peter, and good afternoon everyone. I'm going to review our second quarter results in more detail and then walk through our outlook. As Peter mentioned, total revenue was $25.5 million, up 29% year-over-year. Annual recurring revenue, or ARR, as of June 30, 2024, was $89 million, reflecting growth of 64% year-over-year. Approximately 83% of revenue in Q2'24 was recurring versus 59% in Q2'23, further demonstrating the shift in our business model over the last 12 to 18 months. Remaining Performance Obligation, or RPO, as of June 30, 2024, was $263 million, up 33% year-over-year and 4% sequentially.

Mark Donohue: Thanks, Peter and good afternoon, everyone.

Mark Donohue: I'm going to review, our second quarter results in more detail and then walk through our outlook.

Mark Donohue: As Peter mentioned total revenue was $25 5 million up 29% year over year.

Speaker Change: Annual recurring revenue or <unk> as of June 32024 was $89 million, reflecting growth of 64% year over year.

Speaker Change: Approximately 83% of revenue in Q2, 24 was recurring versus 59% in Q2 'twenty three.

Mark Donohue: Further demonstrating the shift in our business model over the last 12 to 18 months. Remaining performance obligation or RPO as of June 30, 2024, was 263 million, up 33% year-over-year and 4% sequentially. As we've 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 of our P&L and more unit bookings go through the distribution model. We expect the results to be faster growth in recurring revenue and higher overall growth margins for the business, which we saw again in Q2.

Speaker Change: Further demonstrating the shift in our business model over the last 12 months to 18 months.

Speaker Change: Remaining performance obligation or RP O as of June 32024 was $263 million up 33% year over year and 4% sequentially as.

Mark Donohue: As we've 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 of our P&L and more unit bookings go through the distribution model. We expect the results to be faster growth in recurring revenue and higher overall gross margins for the business, which we saw again in Q2. Adjusted gross margin, which excludes stock-based compensation and certain other one-time expenses, was 58% in the second quarter of 2024, compared to 38% in the second quarter of last year.

Speaker Change: As we've been sharing with our investors on prior calls we continue to expect the rate of growth in RPI would temper as lower margin hardware revenue begins to come off of our P&L and more unit bookings go through the distribution model.

Mark Donohue: We expect the results to be faster growth in recurring revenue and higher overall gross margins for the business, which we saw again in Q2.

Mark Donohue: Adjust the growth margin, which excludes stock-based compensation in certain other one-time expenses, was 58% in the second quarter of 2024, compared to 38% in the second quarter of last year. This primarily reflects our continued transition to recurring revenue streams, both through our pure subscription model and our newer distribution subscription model. Adjusted operating expenses, which excludes stock-based compensation, loss on impairment of equipment, and certain other one-time expenses, which 26.5 million compared to 23.7 million in the second quarter of last year. The increase year-over-year primarily reflects modest headcount investments across the business. We continue to leverage AI-powered solutions as an alternative to growing headcount where possible.

Speaker Change: Adjusted gross margin, which excludes stock based compensation and certain other one time expenses was 58% in the second quarter of 2024 compared to 38% in the second quarter of last year.

Mark Donohue: This primarily reflects our continued transition to recurring revenue streams, both through our pure subscription model and our newer distribution subscription model. Adjusted operating expenses, which exclude stock-based compensation, loss on impairment of equipment, and certain other one-time expenses.

Mark Donohue: This primarily reflects our continued transition to recurring revenue streams, both through our pure subscription model and our newer distribution subscription model.

Speaker Change: Adjusted operating expenses, which exclude stock based compensation loss on impairment of equipment and certain other onetime expenses.

Mark Donohue: We are 26.5 million compared to 23.7 million in the second quarter of last year. The increase year-over-year primarily reflects modest headcount investments across the business. We continue to leverage AI-powered solutions as an alternative to growing headcount where possible. Adjusted loss, which excludes stock-based compensation, non-cash charges, and other one-time items, was $11.1 million, compared to $14.3 million in the second quarter of last year

Speaker Change: With $26 5 million compared to $23 7 million in the second quarter of last year.

Speaker Change: The increase year over year, primarily reflects modest head count investments across the business. We continue to leverage AI powered solution as an alternative to growing head count where possible.

Mark Donohue: Adjusted loss, which excludes stock-based compensation, non-cash charges, and other one-time items, was 11.1 million compared to 14.3 million in the second quarter of last year. Adjusted EBITDA, which excludes stock-based compensation, non-cash charges, and other one-time items, was negative 7.9 million compared to negative 13.8 million in the second quarter of last year.

Speaker Change: Adjusted loss, which excludes stock based compensation noncash charges and other onetime items was $11 1 million compared to $14 3 million in the second quarter of last year.

Mark Donohue: Adjusted EBITDA, which excludes stock-based compensation, non-cash charges, and other one-time items, was negative $7.9 million, compared to negative $13.8 million in the second quarter of last year. This reflects strong revenue growth and gross margin expansion along with prudent expense management. Turning to the balance sheet, we ended the quarter with $57 million in cash, cash equivalents, restricted cash, and marketable securities, compared to $81 million at the end of Q1 2024, which reflects cash used in operations and cash used to support our peer subscription model.

Speaker Change: Adjusted EBITDA, which excludes stock based compensation noncash charges and other onetime items was negative $7 9 million compared to negative $13 8 million in the second quarter of last year.

Mark Donohue: This reflects strong revenue growth and gross margin expansion, along with prudent expense management. Turning to the balance sheet, we ended the quarter with 57 million in cash, cash equivalence, restricted cash, and marketable securities, compared to 81 million at the end of Q1 2024, which reflects cash used in operations and cash used to support our pure subscription model. As Peter indicated, we continue to expect to reach positive adjusted EBITDA in Q2 2025 with similar levels of cash on hand. Notably, we expect to achieve this without any additional debt financing. However, as the interest rate environment becomes more favorable, we are actively evaluating non-delutive forms of debt financing that may be attractive to our long-term capital needs.

Speaker Change: This reflects strong revenue growth and gross margin expansion, along with prudent expense management.

Speaker Change: Turning to the balance sheet, we ended the quarter with $57 million in cash cash equivalents restricted cash and marketable securities compared to $81 million at the end of Q1 2024.

Speaker Change: Which reflects cash used in operations and cash used to support our peer subscription model.

Mark Donohue: As Peter indicated, we continue to expect to reach positive adjusted EBITDA in Q2 of 2025 with similar levels of cash on hand. Notably, we expect to achieve this without any additional debt financing. However, as the interest rate environment becomes more favorable, we are actively evaluating non-dilutive forms of debt financing that may be attractive to our long-term capital needs, while any set to action would be modest.

Speaker Change: As Peter indicated we continue to expect to reach positive adjusted EBITDA in Q2 of 2025 with similar similar levels of cash on hand.

Peter: Notably we expect to achieve this without any additional debt financing.

Peter: However, as the interest rate environment becomes more favorable we are actively evaluating non dilutive forms of debt financing that may be attractive to our long term capital needs any such action would be modest.

Mark Donohue: Any set action would be modest.

Mark Donohue: I want to close with a few comments on our outlook. We are encouraged by our performance in Q2, which played out largely as we expected. In the second half of the year, we will continue to focus on improving sales execution, raising grand awareness, driving demand generation, and optimizing our channel partner program.

Mark Donohue: I want to close with a few comments on our outlook. We are encouraged by our performance in Q2, which played out largely as we expected. In the second half of the year, we will continue to focus on improving sales execution, raising brand awareness, driving demand generation, and optimizing our channel partner program. As such, we are reaffirming our guidance across the board. For the full year, we expect to deliver revenues of about $100 million, which reflects growth of 25% year-over-year.

Peter: I want to close with a few comments on our outlook.

Peter: We're encouraged by our performance in Q2, which played out largely as we expected.

Peter: In the second half of the year, we will continue to focus on improving sales execution, raising brand awareness driving demand generation and optimizing our channel partner program.

Mark Donohue: Ram. As such, we are reaffirming our guidance across the board. For the full year, we expected to deliver revenues of about 100 million, which reflects growth of 25% year-over-year. We believe we are in an excellent position to achieve this goal given our first half performance and our outlook for the balance of the year. We continue to expect to exit 2024 with ARR of around 100 million, reflecting growth of about 33% year-over-year. Our estimate for adjusted full-year growth margin remains at about 60%. Further, we believe we can deliver improvements in full-year adjusted EBITDA, at least 40% in 2024.

Peter: As such we are reaffirming our guidance across the board.

Peter: For the full year, we expect to deliver revenues of about $100 million, which reflects growth of 25% year over year.

Mark Donohue: We believe we are in an excellent position to achieve this goal given our first half performance and our outlook for the balance of the year. We continue to expect to exit 2024 with ARR of around $100 million, reflecting growth of about 33% year-over-year. Our estimate for adjusted full-year gross margin remains at about 60%. Furthermore, we believe we can deliver an improvement in full-year adjusted EBITDA of at least 40% in 2024. We believe we remain on track to reach positive adjusted EBITDA by Q2 of 2025. With that, I'll turn the call back over to Brian.

Peter: We believe we are in an excellent position to achieve this goal given our first half performance and our outlook for the balance of the year.

Peter: We continue to expect to exit 2024, with a R. R of around $100 million, reflecting growth of about 33% year over year.

Peter: Our estimate for adjusted full year gross margin remains at about 60%.

Peter: Further we believe we can deliver improvements in full year adjusted EBITDA of at least 40% in 2024.

Mark Donohue: We believe we remain on track to reach positive adjusted EBITDA by Q2 of 25.

Peter: We believe we remain on track to reach positive adjusted EBITDA by Q2 of 'twenty five.

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

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

Operator: Thank you, Mark. Eric, at this time, we would like to open the call up for Q&A. So, I'm going to ask you to start the Q&A session, please. Thank you. If you wish to ask a question, please press one—then zero in your telephone keypad. You may withdraw your question at any time, but repeating the one-zero command. If you're using a speaker phone, please pick up the answer before pressing the numbers. Once again, if you have a question, you may press one—then zero at this time. One moment, please, for the first question.

Brian Norris: Eric, at this time, we'd like to open the call up for Q&A, so I'm going to ask you to start the Q&A session, please. Thank you. If you wish to ask a question, please press 1 then 0.

Brian: Thank you Mark Eric at this time I would like to open the call up for Q&A.

Speaker Change: I'm going to ask you to start the Q&A session. Please.

Operator: Thank you. If you wish to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers.

Speaker Change: Thank you.

Speaker Change: 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 ones Youre 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 <unk> zero at this time one moment. Please for the first question.

Operator: Once again, if you have a question, you may press 1 then 0 at this time. One moment, please, for the first question. And the first question will come from the line of Michael Latimore. Please go ahead. Hi, this is Adit Yon.

Speaker Change: Yes.

Adityan: And the first question to go from the line of Michael Attimore, please go ahead.

Speaker Change: And the first question to go from the line of Mike Latimore. Please go ahead.

Peter George: Hi, this is Adityan, behalf of Michael Attimore. Could you give some color on the industrial warehouse vertical? What kind of catalyst is needed for acceleration in the industrial warehouse?

Speaker Change: Hi, This is <unk> on behalf of Mike Latimore could you give some color on the industrial warehouse vertical what kind of catalyst is needed for the acceleration in the industry on the back of house.

Peter George: I think you're asking the question about the vertical, the new vertical that we're opening up: the industrial warehouses. And what could be the catalyst for that? Is that your question? Yeah. So, look, it's still early days in that vertical. We have a dedicated team on that vertical. Post-COVID, that's a vertical that just exploded across North America. You know, it's still early days, but we expect in 2025 for this to be a really important, materially important vertical as it relates to revenue. And then the out years, along with education, be one of the top two verticals in the company.

Peter George: I think you're asking the question about the vertical, the new vertical that we're opening up, the industrial warehouses, and what could be the catalyst for that. Is that your question? Yeah. So, look, it's still early days in that vertical. We have a dedicated team in that vertical. Post-COVID, that's a vertical that just exploded across North America.

Speaker Change: I think youre asking the question about the vertical the new vertical that we're opening up the industrial warehouses and what could be the catalyst for that.

Speaker Change: Yes at your question Yeah. So look it's still early days in that vertical we have a dedicated team on that vertical.

Speaker Change: Post Covid, that's a vertical that just exploded across North America.

Peter George: You know, it's still early days, but we expect in 2025 for this to be a really important, materially important vertical as it relates to revenue. And then in the coming years, along with education, it will be one of the top two verticals in the company. And what is your total sales headcount? So, let me talk about it. We have close to 150 people in our go-to-market team, and that includes sales and support, and solutions engineers and CSMs.

Speaker Change: Still early days, but we expect in 2025 to this for this to be a really important materially important vertical as it relates to revenue and then in the out years, along with education be one of the top two verticals in the company.

Speaker Change: Got it.

Mark Donohue: What is your daughter's sales pet cost?

Speaker Change: What is your total sales headcount.

Mark Donohue: Yeah. So, let me talk about, so we have close to 150 people in our go-to-market team. And that includes sales and support and solutions, engineers and CSMs. In terms of quota-carrying salespeople, we have a couple of dozen quota-carrying salespeople across North America in the field.

Speaker Change: Yeah. So let me talk about so we have close to 150 people in our go to market team and that includes sales and support solutions engineers and <unk> in terms of quota carrying salespeople, we have a couple of dozen quota carrying salespeople across north.

Peter George: In terms of quota-carrying salespeople, we have a couple of dozen quota-carrying salespeople across North America in the field. We have a channel team. As you know, about 70% of our business comes through channel partners, so we have a dedicated channel team that's an overlay team. Our quota-carrying salespeople get full credit for all the revenue that comes through channel partners. We do sell direct to the sporting vertical, but that's the only place that we typically don't go through the channel. So, we have a very sizable team, and they get operational leverage almost every quarter in the business.

Speaker Change: America in the field, we have a channel team as you know about 70% of our business comes through channel partners. So we have a dedicated channel team. That's an overlay team our quota carrying salespeople get full credit for all the revenue that comes through channel partners. We.

Mark Donohue: We have a channel team, as you know. About 70 percent of our business comes through channel partners. So, we have a dedicated channel team that's an overlay team. Our quota-carrying salespeople get full credit for all the revenue that comes through channel partners.

Mark Donohue: We do sell direct to the sporting vertical, but that's the only place that we typically don't go through the channel. So, we have a very sizable team, and they're getting operational leverage almost every quarter in the business.

Speaker Change: We do sell direct to the sporting vertical.

Speaker Change: But that's the only place that we typically don't go through the channels. So we have a very sizable team and theyre getting operational leverage almost every quarter in the business.

Brett Knoblauch: Thank you, and the next question comes from a line of Brett Knoblauch with Cantor Fitzgerald.

Operator: Fine. Thank you. Thank you. Thanks for the questions.

Speaker Change: Alright, thank you.

Speaker Change: Thank you thanks for the question.

Operator: And the next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Speaker Change: And the next question comes from the line of Brett Knoblauch with Cantor Fitzgerald. Please go ahead.

Mark Donohue: Hey guys, I think that's on the quarter.

Peter George: Hey guys, congrats on the quarter. Maybe we can just start with an update on the regulatory front. I know last quarter kind of dominated the release and regulatory overhangs causing sales cycles to lengthen. Given, you know, the new customers you landed, this quarter was the most you had done in a good while. Could you maybe just update us on, you know, how sales cycles are performing, and where we are in terms of the regulatory overhang? Have you heard back from the FTC or SEC yet?

Brett Knoblauch: Hey, guys congrats on the quarter.

Mark Donohue: Maybe if we can just start with an update on the regulatory front. I know last quarter kind of dominated the release and regulatory overhangs, causing sales cycles to lengthen. Given the new customers you landed, this quarter was the most you did in a good while. Could you maybe just update us on how sales cycles are performing, where we are in terms of the regulatory overhang. Have you heard back from the FTC or SEC yet? So look, we're in communication with the FTC, and we continue to work closely with them, collaborate with them, and we're working towards a resolution.

Brett Knoblauch: And if we can just start with an update on the regulatory front I know last quarter. It kind of dominated the releasing regulatory overhangs, causing sales cycles to lengthen given the new customers you landed this quarter was the most used it in a good while.

Speaker Change: Could you maybe just update us on how sales cycles are performing where we are in terms of the regulatory overhang have you heard back from the FTC or FCC yet.

Peter George: So look, we're in communication with the FTC, and we continue to work closely with them, collaborate with them, and we're working towards a resolution. And as we've probably said before, typically, these are FTC investigations that go on for 12 to 18 months. So we're still in that zone, and we're working towards a resolution.

Speaker Change: So look we are in communication with the with the FTC.

Speaker Change: And we continue to work closely with them and collaborate with them and we're working towards a resolution and as we've probably said before typically the FTC. These are investigations that go on for 12 to 18 months of work, we're still in that zone.

Mark Donohue: And as we've probably said before, typically the FTC, these are investigations that go on for 12 to 18 months. So we're still in that zone. And we're working towards a resolution, so we feel good about it.

Speaker Change: And we're working towards a resolution so we feel good about it on as it relates to our sales cycle, our sales cycle times haven't changed and the truth is we don't want to rush our customers.

Peter George: So we feel good about it. As it relates to our sales cycle, our sales cycle times haven't changed. And the truth is, we don't want to rush our customers. We're fully transparent with our customers. Most of them want to do their own trials and POCs. They want to go, potentially, to other like-minded schools or hospitals or places to see the system in action.

Mark Donohue: On, as it relates to our sales cycle, our sales cycle times haven't changed, and the truth is we don't want to rush our customers. We're fully transparent with our customers. Most of them want to do their own trials and POCs. They want to go potentially to other like-minded schools or hospitals or places to see the system in action. And oftentimes, they test it themselves. We don't want to rush that. Sales cycles have elongated, but not anymore than they were in Q2. What has changed, like in Q2, our close rate went up. If you may remember in Q2, that state constant, which is terrific.

Peter George: And oftentimes, they test it themselves. We don't want to rush that. The sales cycles have elongated, but not any more than they were in Q2. What has changed, like in Q2, our close rate went up. If you can remember, in Q2. That stayed constant, which is terrific.

Speaker Change: We're fully transparent with our customers most of them want to do their own trials and poc's. They want to go potentially to other likeminded schools or hospitals or places to see the system in action and often time. They test it themselves, we don't want to rush that the sales cycles have elongated but.

Speaker Change: Not anymore than they were in Q2, what has changed like in Q2, our close rate went up if you may remember in Q2 that stayed constant which is terrific. We have 100% close rate in the health care vertical so our close rates very very high and what we've done our competition has.

Mark Donohue: We have a 100% close rate in the healthcare vertical. So our close rate is very, very high. And what we've done, our competition has weaponized the regulatory issues, and we're taking those on early in the sales cycle instead of being surprised at the end. And because of that, we're able to keep a high close rate and make sure that if there's a problem with a customer, we find out early and not waste a lot of time if that's going to get in the way of the decision. So we're feeling good about where we are in terms of that sales execution in the marketplace because we're talking about the regulatory environment early with the customers.

Peter George: We have a 100% close rate in the health care vertical, so our close rate is very, very high. And what we've done, our competition has weaponized regulatory issues, and we're taking those on early in the sales cycle instead of being surprised at the end. And because of that, we're able to keep a high close rate and make sure that if there's a problem with a customer, we find out early and not waste a lot of time if that's going to get in the way of a decision. So we're feeling good about where we are in terms of that sales execution in the marketplace because we're talking about the regulatory environment early with the customer.

Speaker Change: Weaponized the regulatory.

Operator: Your conference will begin momentarily, please continue to hold . . Our potential for growth and ability to obtain new customers and retain existing customers, demand for our products and offerings, our expectations regarding outcomes of any legal proceedings, including regulatory inquiries, and our ability to meet our business outlook.

Speaker Change: The issues and we're taking those on early in the sales cycle instead of being surprised at the end because of that.

Speaker Change: We were able to keep the high close rates and make sure that if there's a problem with a customer we find out early and not waste a lot of time, if that's going to get in the way of a decision. So we're.

Speaker Change: We're feeling good about where we are in terms of that sales execution in the marketplace, because we're talking about the regulatory environment early with the customers.

Speaker Change: Yeah.

Peter George: And then maybe we can just touch on, you know, what's been very public over the last couple of months, and that's the New York City subway with the New York City mayor, you know, having a couple press conferences standing next to one of your units, and I believe he started to deploy some of those units over the preceding weeks. Could you just update us as to how you guys signed a contract with them, you know, how big that contract is, what are the terms, or just any color on your involvement there?

Mark Donohue: Thank you.

Speaker Change: Got it. Thank you and then maybe if we can just touch on whats been very public over the last couple of months and Thats, The New York City subway with.

Mark Donohue: Then maybe if we can just touch on what's been very public over the last couple of months, and that's the New York City subway, the New York City mayor having a couple of press conferences standing next to one of your units and believe he started to deploy some of those units over the prior weeks. Could you just update us as to how do you guys find a contract with them? You know, how big is that contract with the terms, or any color on your involvement there? Yeah, look, we're still working with what is arguably the best law enforcement agency in the country.

Speaker Change: New York City Mayor, having a couple of press conferences standing next to one of your units.

Speaker Change: I believe you started to deploy some of those units over the prior weeks can you just update us as to how do you guys sign a contract with them.

Speaker Change: How big is that contract terms or just any color on your involvement there.

Peter George: Look, we're still working with what is arguably the best law enforcement agency in the country. We have a lot of confidence in their ability to protect New Yorkers on the subways and everywhere. As you probably know, we have a long history in New York City. It was one of our first places where our first customer, Lincoln Center, which is a very visible place.

Speaker Change: Yeah, well look we're still we're still working with what is arguably the best law enforcement agency in the country, we have a lot of confidence in their ability to protect our new Yorkers on the subways and everywhere as you probably know we have a long history in New York City, we've been.

Mark Donohue: We have a lot of confidence in their ability to protect New Yorkers on the subways and everywhere. As you probably know, we have a long history in New York City. We've been; it was one of our first places where our first customer, Lincoln Center, which is a very visible place. And since then, you know, there have been museums and hospitals and tourist sites, all kinds of attractions, including sporting stadiums. We protect close to 14 million New Yorkers. And during that time, over the last seven years, we've stopped 20,000 weapons from going into places. So we have a long history there.

Speaker Change: It was one of our first places where our first customer Lincoln Center, which is a very visible place and since then.

Peter George: And since then, you know, there have been museums and hospitals and tourist sites, all kinds of attractions, including sporting stadiums, where we protect close to 14 million New Yorkers. And during that time, over the last seven years, we've stopped 20,000 weapons from going into buildings. So we have a long history there. The New York police knows that.

Speaker Change: There've been museums in hospitals.

Speaker Change: Tourist sites, all kinds of attractions, including sporting stadiums, where we protect close to 14 million new Yorkers and during that time over the last seven years we've.

Speaker Change: Stop 20000 weapons.

Speaker Change: From going into places so wherever we have a long history. There the New York Police knows that we're still working with them.

Mark Donohue: The New York Police knows that. We're still working with them and letting them make the decisions that they need to, to protect the citizens of New York. And we're going to continue to support them, and we're confident that they're going to make a decision that's right for the city. And we're going to support whatever decision that is. But have they started already deploying your units in this always? They're still testing our systems. They have tested other companies as well. So you'll see our systems out there.

Peter George: We're still working with them and letting them make the decisions that they need to protect the citizens of New York. And we're going to continue to support them. And we're confident that they're going to make a decision that's right for the city, and we're going to support whatever decision that is.

Speaker Change: And letting them make the decisions that they need to to protect the citizens of New York and work, we're going to continue to support them and we're confident that theyre going to make a decision that's right for the city and we're.

Speaker Change: We're going to support whatever decision that is.

Operator: But have they already started deploying your units in the subways?

Speaker Change: But have they started already deploying your units in some ways.

Peter George: They're still testing our systems. They have tested other companies as well, so you'll see our systems out there. We're in the middle of that, but it's still in its trial phase.

Speaker Change: They are still testing our systems they have tested other companies as well.

Speaker Change: So youll see our systems out there they are in the middle of that but it is still in its and its trial phase.

Mark Donohue: They're in the middle of that, but it's still in its trial phase.

Mark Donohue: I understand. Thank you. Appreciate it.

Speaker Change: Sure.

Operator: understood. Thank you. I appreciate it.

Speaker Change: Understood. Thank you I appreciate it.

Speaker Change: Alright.

Operator: The next question comes from the line of Jeremy Hamblin with Craig Hallam. Please go ahead.

Jeremy Hamblin: Next question comes from the line of Jeremy Hamblin with Craig Hallum.

Speaker Change: Next question comes from the line of Jeremy Hamblin with Craig Hallum. Please go ahead.

Mark Donohue: Please go ahead. Thanks and congrats on the strong results.

Operator: Thanks and congratulations on the strong results. Just as a follow-up question on that last point, you know, what have you seen in terms of, you know, inbound interest over the last couple of months? You know, certainly, you know, I think at the least it's some nice validation for the technology to have the largest city in the country and such a large mass commuter system using that. Wanted to just get a sense of your inbound interest that you've seen.

Jeremy Hamblin: Thanks, and congrats on the strong results just as a follow up question on that last point.

Mark Donohue: Just as a follow-up question on that last point, what have you seen in terms of inbound interest over the last couple of months? Certainly, I think at the least it's a nice validation for the technology to have a larger city in the country and such a large math commuter system using that. Wanted to just get a sense for your inbound interest that you've seen. Yeah, look, we started working with cities in the city of Detroit a couple of years ago, and the city of Detroit has dozens of our systems that they use to create safe places or safer zones in open places like the fireworks, for example.

Jeremy Hamblin: What have you seen in terms of inbound interest you know over the last couple of months certainly you know I think at least its a nice validation for the technology to have the largest city in the country.

Speaker Change: And that's such a large mass computer system using that.

Operator: 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 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 10K for the year-rended December 31, 2023, filed with the SEC on February 29, 2024, and our quarterly report on Form 10K, for the three months ended, June 30, 2024, which we filed with the SEC earlier today.

Jeremy Hamblin: Wanted to just get a sense for your inbound interest that you've seen.

Peter George: Yeah, look, we started working with cities in the city of Detroit a couple of years ago. And the city of Detroit has dozens of our systems that they use to create safe places or safer zones in open places, like at fireworks, for example. So we have a track record there, and now with, you know, what's happening in New York City, we are getting inbound through that brand awareness from other cities, like L.A. and other places that care about keeping their citizens safe. So it's not included in our TAM when we talk about our TAM today, but as we start to make progress in cities, we'll talk about that as a vertical expansion opportunity in our TAM.

Speaker Change: Yeah look we started working with cities and the city of Detroit, a couple of years ago and the city of Detroit has dozens of our systems that they use to create.

Speaker Change: Safe places, where safer zones and open and open places like the fireworks for example, so we have a track record there and now with.

Mark Donohue: So we have a track record there, and now with what's happening in New York City, we are getting inbound through that brand awareness from other cities like in LA and other places that care about keeping their citizens face.

Speaker Change: Whats happening in New York City, we are getting inbound through that brand awareness from other cities like in L. A and other places that care about keeping keeping their citizens space. So it's not included in our Tam when we talk about our Tam today, but as we start to make progress in cities, we're going to win.

Operator: Forward-looking statements made today represent our views as of August 8, 2024, although we believe 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 maybe required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.

Mark Donohue: So it's not included in our TAM when we talk about our TAM today, but as we start to make progress in cities, we'll talk about that as a vertical expansion opportunity in our TAM.

Speaker Change: I'll talk about that as a as a vertical.

Speaker Change: Expansion opportunity in our Tam.

Mark Donohue: Got it. And then I just wanted to get a sense in terms of your cash flow and inventory management.

Operator: I got it. And then I just wanted to get a sense in terms of your cash flow and inventory management. And as we think about the evolution of that here over the next three, four quarters, you know, just to get a sense for where you are on your balance sheet and how, as you see conversion to more distributor deals versus subscription deals, you know, how should we expect that to play out in terms of, you know, the quarter where you expect, you know, maybe cash and equivalents to bottom out and start to build back up, kind of the timing on that And then kind of related to that question, I suppose, is, you know, where do you expect to be in terms of percentage of total deals, distributor versus subscription, at year end?

Speaker Change: Got it.

Operator: Our commentary today will also include non-gap financial measures which we believe provide additional insight for investors. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted evida, adjusted earnings, and adjusted earnings per diluted share. Reconciliation between these non-gap measures and the most directly comparable gap measures can be found in our press release issue today.

Speaker Change: And then I just wanted to get a sense in terms of your cash flow.

Speaker Change: And the inventory management and as we think about the evolution of that here over the next three or four quarters.

Mark Donohue: And as we think about the evolution of that here over the next three, four quarters, just to get a sense for where you are on your balance sheet and how you expect, as you see conversion to more distributor deals versus subscription deals, how should we expect that to play out in terms of the quarter where you expect maybe cash and equivalence to bottom out?

Speaker Change: Just to get a sense for where you are on your your balance sheet.

Speaker Change: And how you expect as you see conversion to more distributor deals versus subscription deals.

Speaker Change: How should we expect that to play out in terms of you know.

Speaker Change: The quarter, where you expect you know maybe cash.

Speaker Change: And equivalents to bottom out.

Mark Donohue: And start to build back up kind of the timing on that, and then kind of related to that question, I suppose, is, you know, where do you expect to be in terms of percentage of total deals distributor versus subscription at year end?

Operator: Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We will be discussing such key metrics as inner-recurring revenue or ARR, remaining performance obligation, or RPO, deployment activity, and total number of subscriptions, each of which we believe is helpful to investors in understanding the progress that we are making as a business.

Speaker Change: And start to build back up.

Speaker Change: Kind of the timing on that and then kind of related to that question I suppose as you know.

Speaker Change: Where do you expect to be in terms of percentage of total deals distributor versus subscription at yearend.

Mark Donohue: Yeah, thanks for the question. You know, we talked about how we were going to end this quarter. We were at about 57 million in cash and cash equivalents. We had talked about being around in the 60 zip code. So we had a little bit of extension and some of our accounts, accounts receivable receivable. You know, a lot of that was to finish buying this inventory build up that we did in the transition from generation one to generation two systems. We have seen an increase in the distribution model. It doubled from Q1 to Q2, from 20% to just over 40%.

Mark Donohue: Thanks for the question. We had talked about how we were going to end this quarter. We were at about $57 million in cash and cash equivalents. We had talked about being around in the $60 zip code, so we had a little bit of an extension on some of our accounts receivable. A lot of that was to finish the inventory buildup that we did in the transition from Generation 1 to Generation 2 systems.

Speaker Change: Yes. Thanks for the question you know, we we had talked about how we were going to end. This quarter, we were at about $57 million in cash and cash equivalents.

Operator: With that, I would like to turn the call over to Peter. Peter?

Speaker Change: You had talked about being around $60 ZIP code. So we had a little bit of extension in some of our accounts are accounts receivable.

Peter George: Thank you, Brian. And thanks everyone for joining us today.

Speaker Change: <unk>.

Peter George: I am going to spend a few minutes on our Q2 results and the key trends we are seeing in the business.

Speaker Change: A lot of that was to was to finish buying this inventory buildup that we did in the transition from generation one to generation two systems, we have seen an increase in the distribution model. It doubled from Q1 to Q2 from 20% to just over 40% we were expecting this quarter to be in the third.

Peter George: Mark will then walk through our financial results in more detail as well as our outlook for the remainder of 2024. Revenue in the second quarter was a record, 25.5 million, up 29% year over year, and 18% sequentially, reflecting strong new customer acquisition activity, continued expansion from our installed customer base, and growth in subscriptions of evolved express. We added 84 new customers in Q2, and now serve over 800 customers across 10 key vertical markets.

Mark Donohue: We have seen an increase in the distribution model. It doubled from Q1 to Q2 from 20% to just over 40%. We were expecting this quarter to be in the 30% zip code, but by the end of the year, we're hoping that it's around 50% of the quarterly activity by Q4. In terms of cash hitting the bottom, I would say that we're probably going to see a little bit more cash usage in Q3, but then coming back and being around the $60 million zip code by the end of the year. We'll see a little bit of cash usage in Q1 I really want to hone in on the $60 million level that I think we're going to be achieving over the next four quarters, given this.

Mark Donohue: We were expecting this quarter to be in the 30% zip code. But by the end of the year, we're hoping that it's around 50% of the quarterly activity by Q4.

Speaker Change: 80% Zip code.

Speaker Change: But by the end of the year, we're hoping that it's that it's around 50% of the quarterly activity.

Speaker Change: By Q4 and in terms of the cash hitting a bottom I would say that we're probably going to see a little bit of a little bit more cash usage in Q3, but then kind of coming back and being around the $60 million ZIP code by the end of the year, we will see a little bit of cash usage in Q1, that's typical for us.

Mark Donohue: And in terms of the cash hitting the bottom, I would say that, you know, we're probably going to see a little bit of a little bit more cash usage in Q3, but then kind of coming back and being around the 60 million zip code by the end of the year. We'll see a little bit of cash usage in Q1. That's typical for us, but then kind of come popping back to about the 60 million level when we hit profitability in Q2. So, you know, I really want to kind of hone in on this 60 million dollar level that I think we're going to be achieving over the next four quarters given this.

Peter George: This is the highest number of new customers in a quarter since the fourth quarter of 2022. ARR grew to 89 million as of June 30, 2024, which was up about 64% year over year, and 18% sequenced. A just a gross margin expanded to 58% in Q2 compared to 38% in Q2 of last year. This is largely attributable to the accelerated adoption of the distribution subscription model we introduced last year, which has resulted in a significant shift to reoccurring revenue.

Speaker Change: But then kind of come popping back to about the $60 million level. When we hit profitability in Q2, so I really want to kind of hone in on the $60 million level that I think we're going to be achieving.

Speaker Change: Over that over the next four quarters given that one of the key elements of what we're doing right now as this distribution model is popping up as moving some of our equipment, which was originally and fixed assets back to the inventory line. So you'll see on our balance sheet that the inventory line.

Mark Donohue: One of the key elements of what we're doing right now, as this distribution model is popping up, is moving some of our equipment, which was originally in fixed assets, back to the inventory line. You'll see on our balance sheet that the inventory line grew. It wasn't because we bought more systems. It's because we redistributed how they are on the balance sheet right now. That's in anticipation of seeing more and more of this distribution activity.

Mark Donohue: One of the key elements of what we're doing right now as this distribution model is popping up is moving some of our equipment, which was originally in fixed assets, back to the inventory line. So, you'll see on our balance sheet that the inventory line grew. It wasn't because we bought more systems. It's because we redistributed how they are on the balance sheet right now. And that's an anticipation of seeing more and more of this distribution activity. Just to remind you, we only keep things in fixed assets that are or will be subscription over the long term.

Peter George: I'll touch more on this in a few moments. We activated 441 new multi-use subscriptions of Evolv Xpress in Q2 compared to 377 in Q1. We believe this is an encouraging bounce back on this key metric. Evolv Xpress was used to screen on average nearly 3 million visitors a day in Q2. Our customers are using Evolv Xpress to tag on average more than 500 firearms every single day. We continued to demonstrate the leverage in our business model and delivered adjusted EBITDA of negative 8 million compared to negative 14 million a year ago. We believe we're continuing our steady march to reaching positive adjusted EBITDA by Q2 of 2025.

Speaker Change: Grow it wasn't because we bought more systems, it's because we redistributed how they are on the on the balance sheet right now and thats in anticipation of seeing more and more of this.

Speaker Change: Of this distribution activity just to remind you we only we only keep things and fixed assets that are or will be subscription or over the long over the long term.

Mark Donohue: Just to remind you, we only keep things in fixed assets that are or will be subscription over the long term. Part of the deal here is we won't have any capex needs with regard to product, probably until going into next year. We're building up credits based on the fact that we took on all the inventory with Columbia Technology, our contract manufacturer. It'll take into the beginning of next year to eat through those credits from an inventory perspective.

Mark Donohue: But part of the deal here is we won't have any CAPX needs with regards to product, probably until going into next year. We're building up credits based on the fact that we took on all the inventory with Columbia Technology, our contract manufacturer, and it'll take into the beginning and exterior to eat through those credits from an inventory perspective.

Speaker Change: Part of it part of the deal here is we won't have any capex needs with regards to the product probably until going into next year, we were building up credits.

Speaker Change: Based on the fact that we took on all of the inventory.

Speaker Change: With.

Speaker Change: With Columbia technology, our contract manufacturer and it'll take into at the beginning of next year to eat through those credits from an inventory perspective.

Mark Donohue: Got a great color.

Operator: Got a great color. Last one for me.

Speaker Change: Got it great color last one for me.

Mark Donohue: Last one for me.

Mark Donohue: Your G&A expense jumped a little bit here in Q2, you know, from a run rate that you kind of seen, you know, a steady progression made a bit of a jump there. Wanted to see if you could provide a little bit of color on that and then kind of how we should be thinking about that on a go-forward basis. Yeah, honestly, on an adjusted level, it's relatively stable. We actually had to do some estimates for legal settlements that we've been working through lately. There's a little bit related to stock compensation as well, but a lot of this is actually more in the reserve category than anything else.

Speaker Change: G&A expense jumped a little bit here in Q2.

Operator: Your GNA expense jumped a little bit here in Q2. You know, from a run rate that you kind of saw, the steady progression made a bit of a jump there. Wanted to see if you could provide a little bit of color on that and then kind of how we should be thinking about that on a go forward basis.

Peter George: I want to turn and discuss the key drivers we're seeing in the business. I'll start with the three key focus areas we discuss on our last earnings call. Number one, building installation backlog. Two, driving accelerated adoption of our distribution model. And three, improving overall sales execution. First, building installation backlog refers to booking more units in a quarter than we install, which enables us to improve the overall predictability and efficiency of the business.

Speaker Change: You know from a run rate that you're you've kind of seen a stair.

Speaker Change: Steady progression made a bit of a jump there.

Speaker Change: Wanted to see if you could provide a little bit of color on that and then kind of how we should be thinking about that on a go forward basis.

Mark Donohue: Yeah, honestly, on an adjusted level, it's relatively stable. We actually had to do some estimates for legal settlements that we've been working through lately. There's a little bit related to stock compensation as well, but a lot of this is actually more in the reserve category than anything else.

Speaker Change: Yeah honestly on an adjusted level, it's relatively stable, we actually had to do some estimates for legal settlements that we've been working through lately theres, a little bit related to stock compensation as well, but a lot of this is actually more in the reserve category than anything else.

Peter George: We're pleased to report that we continue to make very good progress on this initiative, which in turn helps us drive increased visibility. Second, the accelerated adoption of our distribution model continues to be the single greatest driver to gross margin expansion because it reduces one-time product revenue, shifts more revenue to reoccurring and adds more high margin license fees. I am really pleased to report that over 40% of units booked in Q2 were via the distribution model, which is double what we saw in Q1.

Mark Donohue: Great. Thanks for the color, and good luck the rest of the year. Thanks. You bet.

Operator: Great. Thanks for the color and good luck the rest of the year.

Speaker Change: Great. Thanks for the color and good luck the rest of the year. Thanks.

Speaker Change: You bet.

Hugh Cunningham: And the next question comes in line of Hugh Cunningham with TD Cohen.

Speaker Change: Yeah.

Operator: And the next question comes from the line of Hugh Cunningham with TD Cohen. Please go ahead.

Speaker Change: And the next question comes from the line of Hugh Cunningham with TD Cowen. Please go ahead.

Mark Donohue: Please go ahead. Hey guys, thanks for taking my question. Congrats on a good quarter and nice to see the unit add tick back up and the guidance reaffirmation.

Operator: Hey guys, thanks for taking my question, congrats on a good quarter and nice to see the unit ad tick back up and the guidance reaffirmation.

Hugh Cunningham: Hey, guys. Thanks for taking my question Congrats on a good quarter and nice to see the unit adds tick back up in the guidance reaffirmation.

Operator: Thank you.

Peter George: Thank you. Good questions here. So first in term, it seems like CT. I know they're long term partner for you guys, but it seems like CT is sort of hitting an equilibrium point from an operating standpoint here. How is that relationship going? And then Peter, you've hinted a few times on this, but the new products and the add-ons. I think last time we talked about the brandished weapon detection, and for me it's pretty interesting, all the other things you could add on, particularly given that you control such a valuable piece of real estate.

Speaker Change: Thank you.

Operator: Good questions here. So first, terms. It seems like CT, I know they're a long-term partner for you guys, but it seems like CT is sort of hitting an equilibrium point from an operating standpoint here. How is that relationship going?

Speaker Change: Quick questions here. So first in term it seems like I know there are long term partner for you guys.

Peter: But it seems like <unk> sort of hitting an equilibrium point from operating standpoint here how is that relationship going and then Peter you've hinted a few times on this.

Peter George: And finally, we're making good progress from some of the actions we initiated to improve overall sales execution. This includes enhancing demand generation efforts, expanding our pipeline, driving greater brand awareness through initiatives like our evolve and action stadium tour program, and working with our partners to drive stronger channel partner effectiveness. A common way to measure sales execution is of course linearity or the pace of the unit bookings throughout the quarter. We're pleased to report that are linear linearity improves significantly in Q2, which in turn makes everything from bookings to shipments to buildings to collect.

Operator: And then, Peter, you've hinted a few times about this. But the new products and the add-ons, I think last time we talked about..., the brandished weapon detection. And for me, it's pretty interesting all the other things you could add on, particularly given that you control such a valuable piece of real estate.

Peter: But.

Peter: The new products and the add ons that I think last time, we talked about.

Speaker Change: The brandished weapon detection.

Peter: And for me, it's pretty interesting all the other things you could add on.

Speaker Change: Particularly given that you control such a valuable piece of real estate.

Peter: Mhm.

Mark Donohue: Yeah, let me, I think Peter and I'll tag team with this one a little bit. I'll start out with a little bit about Columbia Tech, and then maybe Peter, you can take on some of the new product discussion that we're going through. You know, in terms of Columbia technology, they are a very important partner to us. They are 30 minutes down the street from our organization. We've been working closely with them over the last, you know, really since the inception of the company, to help build our products. And at the current levels that we build and the expertise that we need in launching new products, they're the right partner for us.

Mark Donohue: Yeah, I think Peter and I will tag-team this one a little bit. I'll start out with a little bit about Columbia Tech, and then maybe, Peter, you can take on some of the new product discussion that we're going through. You know, in terms of Columbia Technology, they are a very important partner to us. They are 30 minutes down the street from our organization.

Peter: Yeah, I think Peter and I will tag team. This one a little bit I'll start out with a little bit about Colombia attack and then maybe Peter you can take on some of the new product discussion that will go through.

Peter: In terms of Colombia technology, they are a very important partner to us.

Peter: They are 30 minutes down the street from from our organization, we've been working closely with them over the last you know.

Peter George: Rations run much more efficiently. It also improves predictability in future quarters and raises our overall confidence. Moving to our go-to-market partners, approximately 70% of our unit activity came with or screw our channel partners in Q2. These are partners that extend our reach in certain verticals or geographies where they have a particularly strong presence. We saw a particularly strong activity with Motorola, which was our most active partner in the quarter and with whom we had the most book units since Q4 of 2022.

Peter George: We've been working closely with them over the last, you know, really since the inception of the company to help build our products. And at the current levels that we build and the expertise that we need in launching new products, they're the right partner for us; there's no doubt about it. And we have a lot of confidence in them, and we work closely with them on all of this. And as we think about more products coming out, it's also important that we kind of have that relationship.

Peter: Really since the inception of the company to help build our products and at the current the current levels that we built and the expertise that we need and launching new products. There. They are the right partner for US there is no doubt about it and we have a very we have a lot of confidence in them and we work closely with them.

Mark Donohue: There's no doubt about it, and we have a lot of confidence in them, and we work closely with them on all of this. And as we think about more products coming out, it's also important that we kind of have that relationship. You know, it's not that we won't think about things going forward when the time is right, about expanding our relationships with contract manufacturers, but right now, we are far from hitting the point where Columbia Tech can't help us on our volume levels.

Peter: On all of this and as we think about more products coming out that it's also important that we kind of have that relationship.

Peter George: In fact, unit bookings with Motorola were up 196% year over year in Q2 and 46% in the first half of 2024 compared to the first half of 2023. We continue to ramp our marketing, demand generation efforts with partners and are seeing a notable uptick in partner registration opportunities. We expect to continue to see strong activity with Motorola, Johnson Controls, Securitas Technology, and Alliance Technology Group. These relationships will be central to our plans to scale over time.

Peter George: You know, it's not that we won't think about things going forward when the time is right about expanding our relationships with contract manufacturers, but right now, we are far from hitting the point where Columbia Tech can't help us at our volume levels.

Peter: It's not that we won't think about things going forward. When the time is right about expanding our relationships with contract manufacturers, but right now we are.

Peter: Far from we are far from hitting the point, where Columbia Tech.

Peter: Can help us on our volume levels.

Peter George: Right, and here in terms of new products, so as you know, we announced Visual Gun Detect, which is basically identifying detecting brandish weapons or open carry weapons as people approach the egress where of all the expresses and making a connection between that identification on our tablet is really important and revolutionary in the industry. So those products are already out there. We're starting to see visual gun detection. Help our pipelines who are starting to see new opportunities. And what's interesting is we're getting pulled into deals. And if they're not ready to make a decision on evolved express to find concealed weapons, oftentimes, they're very ready to make an investment in open carry.

Operator: And Hugh, in terms of new products, so as you know, we announced Visual Gun Detect, which is basically identifying and detecting brandish weapons or open carry weapons as people approach the exit where Evolv Express is, and making a connection between that identification on our tablet is really important and revolutionary in the industry. So those products are already out there. We're starting to see Visual Gun Detection help our pipeline, so we're starting to see new opportunities.

Speaker Change: Great to hear you in terms of kind of in terms of new products. So as you know we announced visual gun detect which is basically identifying detecting brandish weapons are open carry weapons as people approach, the egress, where evolve expresses and making a connection between.

Peter: That identification on our tablet is really important and revolutionary in the industry. So those products are already out there, we're starting to see visual gun detection.

Peter: Help our pipelines so we're starting to see new opportunities and what's interesting is we're getting pulled into deals and if they're not ready to make a decision on evolve expressed defined concealed weapons oftentimes they are very ready to make an investment in an open carry.

Operator: And what's interesting is we're getting pulled into deals, and if they're not ready to make a decision on Evolv Express to find concealed weapons, oftentimes they're very ready to make an investment in open carry, and so that's becoming the first product. So we're seeing it in our pipeline today. In terms of the rest of the year, we've said that we're going to be coming out with one, maybe two new products before the year ends. That is on track.

Peter George: We are pleased to report that we again saw very strong renewal activity. Of the 12 evolved express systems that were up for renewal in Q2, only three did not renew and one was due to customer bankruptcy. While we have limited renewal history, our earliest customers are generally entering in either a one or two year renewal contract. We have about 60 units up for renewal in the second half of the year and while it's still early in the process, we expect to see strong renewal trends continuing.

Peter George: And so that's becoming the first product. So we're seeing it in our pipeline today.

Speaker Change: And so that's becoming the first products. So we're seeing it in our in our pipeline today in terms of the rest of the year. We've said that we're going to be coming out with one maybe two new products before the year end that is on track.

Peter George: In terms of the rest of the year, we've said that we're going to be coming out with one, maybe two new products before the year ends. That is on track. They may be both digital and physical, but we're excited about that and what it could mean for our customers. But also, you know, 45% of our businesses this quarter was on expansion capabilities from our existing customers on express systems and visual gun detect. They also want more to your point. So expanding that RPU, becoming more sticky on renewal time, all those things will be real advantages for us as those become important metrics that we report going forward.

Peter George: They may be both digital and physical, but we're excited about that and what it could mean for our customers. But also, you know, 45% of our business this quarter was on expansion capabilities from our existing customers on Express systems and Visual Gun Detect. They also want more, to your point. So expanding that ARPU, becoming more sticky at renewal time, all those things will be real advantages for us as those become important metrics that we report going forward. So before the end of the year, expect to see one or two new products that could sit on that digital platform or be connected to the Evolv system.

Peter: They may be both digital and physical but we're excited.

Peter: Right at about that and what it could mean for our customers, but also you know 45% of our business. This this quarter was on expansion capabilities from our existing customers unexpressed systems and visual gone to attack. They also want more to your point, so expanding that <unk>.

Peter George: Nothing speaks more to the confidence and value that our customers realize and evolve than renewing a subscription contract. We again saw strong bookings contribution from existing customers, which we believe provides validation of customer trust and confidence. We're pleased to report that 45% of our booked ARR in Q2 was from existing customers compared to 37% in Q2 of 2023. These are customers that have thoroughly tested and deployed our technology and have made the decision to expand their deployments.

Peter: Becoming more sticky on the renewal time, all those things will be real advantages for us as those become important metrics that we report going forward. So before the end of the year expect to see one or two new products that could sit on that digital platform or be connected to the evolve system.

Peter George: So, before the end of the year, expect to see one or two new products that could sit on that digital platform or be connected to the Evolve system.

Peter George: Awesome, thanks Peter, thanks Mark. Can I squeeze one more question in? What is the strength behind, what is the reason behind, Motorola's momentum?

Martin: Awesome. Thank you Peter Thanks, Martin can I squeeze one more question what is the street yet.

Peter George: What is the reason behind Motorola's momentum? Well, a fair leader in the space, right? And they have an enviable position with body cameras, with all kinds of technology. And, you know, the OEMR products and AI weapons detection is a big and growing market, and they have a big and growing organization of both direct salespeople in Motorola, selling an end-to-end safety system, and also 2,000 channel partners that want to deliver on that promise. So their size, their market leadership in the safety and security area, their existing relationships with customers, their best in class brand, all make it a natural partner for us, and we're starting to see a lot of traction there, which is great.

Speaker Change: What is the reason behind Motorola has momentum.

Peter George: I want to turn to the trends we're seeing in our end markets, starting with education. First off, we are absolutely thrilled to have welcomed 28 new education customers in Q2. Nearly double the number of education customers we added from Q1. Further, we saw a 60% sequential increase in the number of above expressed units sold to education customers in Q2. Very, very strong growth here. Our education customer selected our distribution subscription model for about 60% of the units in the vertical in Q2.

Operator: Well, look, they're a leader in the space, right? And they have an enviable position with body cameras and all kinds of technology. And, you know, the OEM, our product, and AI weapons detection is a big and growing market. And they have a big and growing organization of both direct salespeople and Motorola selling an end-to-end safety system. And also 2,000 channel partners that want to deliver on that promise. So their size, their market leadership in the safety and security area, their existing relationships with customers, and their best-in-class brand all make them a natural partner for us. And we're starting to see a lot of traction there, which is great.

Speaker Change: Well look we're a leader in this space right and they have the enviable position with body cameras with all.

Speaker Change: All kinds of technology.

Speaker Change: And you know there.

Speaker Change: A OEM our product and AI weapons detection is a big and growing market and they have a big and growing organization.

Speaker Change: Both direct salespeople and Motorola <unk> selling an end to end safety suite.

Speaker Change: System and also 2000 channel partners.

Speaker Change: That want to deliver on that promise so their size their market leadership in the safety and security area. There are existing relationships with customers. They are best in brand are best in class brand all make it a natural partner for us and we're starting to see a lot of traction there.

Peter George: We continue to see some of the largest school districts face their deployments over multiple quarters. So, while we are winning large opportunities, they do not always show up as they are or deployed units in any single quarter. We're also seeing more schools adjust the way they fund security technology in preparation for the expiration of ESSA funding later this year. School boards are finding ways to fund our solution using their operating budgets and capital projects funding.

Peter George: Awesome.

Speaker Change: <unk> is great.

Operator: Awesome. Thanks, Peter. Good luck, guys.

Peter George: Thanks, Peter. Good luck, guys.

Speaker Change: Thanks, Peter and good luck guys.

Operator: Thank you.

Operator: Thank you. And once again, as a reminder, if you have any questions, please press one, then zero at this time.

Speaker Change: Thank you. Thank you.

Speaker Change: Yeah.

Operator: And once again, as a reminder, if you have any questions, please press 1 then 0 at this time. Our next question comes from the line of Eric Martinuzzi. Please go ahead.

Speaker Change: And once again as a reminder, if you have any questions. Please press one zero at this time.

Eric Martinuzzi: Our next question comes from line of Eric Martinuzzi. Please go ahead. Yeah, you spoke to the better linearity in Q2; just wondering how Q3 is starting out. What trends are you seeing in July? Yeah, look, we were really, really pleased with, you know, our business in the early part of the quarter, which we're starting to see repeatable months, you know, moving up into the right. That momentum is continuing, and we're seeing it already in this quarter. So we're expecting that to continue all the work that our sales and marketing organization have been doing to build pipeline to increase their close rate is now starting to translate into the business.

Speaker Change: Our next question comes from the line of Eric Martin Newsy. Please go ahead.

Operator: Yeah, you spoke of the better linearity in Q2. I was just wondering how Q3 is starting out. What trends are you seeing in July?

Speaker Change: Yeah.

Speaker Change: Yeah. He spoke to the better linearity in Q2, just wondering how Q3 is starting out what what trends are you seeing in July.

Peter George: This can make Evolv more embedded in the district standard purchasing motion as opposed to a one-time grant. We routinely screen between 600 and 700,000 students, teachers, administrators and other school visitors every day, compared to about 250,000 a day in the second quarter of last year. We're proud to be deployed in 22 of the 100 largest school districts in the country in over 1,000 school buildings.

Peter George: Yeah, look, we were really, really pleased with our business in the early part of the quarter, which we're starting to see repeatable months, you know, moving up and to the right. That momentum is continuing, and we're seeing it already in this quarter. So, we're expecting that to continue. All the work that our sales and marketing organization has been doing to build pipelines, to increase their close rate, is now starting to translate into the business.

Speaker Change: Yeah look we were really really pleased with.

Speaker Change: Our business in the early part of the quarter, which we're starting to see repeatable months moving up into the right that momentum is continuing and we're seeing it already in this quarter. So we're expecting that to continue or all.

Speaker Change: All the work that our sales and marketing organization have been doing to build pipeline.

Peter George: Our healthcare market remains robust with about a dozen new customers added in Q2. We now operate in over 400 hospital buildings nationwide. We continue to build out and implement an integrated approach to marketing to healthcare customers. That is enabling us to support the upstream requirements of not just local hospitals but more and more healthcare systems. We believe that this is paying dividends as we continue to build momentum with some of the largest healthcare systems in the world. We're proud to screen about 700,000 patients, doctors, nurses, healthcare workers and other hospital visitors every single day, compared to about 300,000 a day last in the second quarter of last year.

Speaker Change: To increase their close rate.

Speaker Change: <unk> is now starting to translate into the business I think the thing we love the most cirrhosis linear or linearity, which will allow us to build backlog going forward, which is something we like a lot. Obviously so continue to watch that you can watch our RP O and our in our bookings continue to grow over the rest of the.

Peter George: And the thing we love the most here is this linearity, which will allow us to build backlog going forward, which is something, you know, we like a lot. Obviously, continue to watch that. You can watch our RPO and our bookings continue to grow over the rest of the year.

Peter George: And the thing we love the most here is this linearity, which will allow us to build backlog going forward, which is something we like a lot, obviously. So continue to watch that. You can watch our RPO and our bookings continue to grow over the rest of the year.

Speaker Change: The year.

Peter George: Let's call you talked a little bit about the competitive landscape, especially in education. Curious to know if you're seeing kind of a pricing stabilizing environment, or still aggressive pricing in the education space. Look, I would say the competitive landscape hasn't changed; you know, our major competitor is a security legacy screening company. And they've been around for quite some time. They sell a like a metal detector, and the technology works like one. So we do very well when we compete with them head to head, but in those very, very price-sensitive schools, they can be tough competition.

Peter George: Last call, you talked a little bit about the competitive landscape, especially in education. Curious to know if you're seeing kind of a pricing stabilizing environment or still aggressive pricing in education.

Speaker Change: Last call you talked a little bit about the.

Speaker Change: Competitive landscape, especially in education curious to know.

Speaker Change: If you are seeing kind of a pricing stabilizing environment or still aggressive pricing in the education space.

Peter George: Look, I would say the competitive landscape hasn't changed. You know, our major competitor is a security legacy screening company, and they've been around for quite some time. They sell a Leica metal detector, and the technology works like one.

Speaker Change: Look I would say the competitive landscape hasnt changed our major competitor is.

Speaker Change: Our security legacy screening company.

Peter George: Professional sports and live entertainment continues to be a key vertical for us. As of today, more than 40 teams across five major professional sports leagues across the United States rely on evolved technology as part of a layered approach to venue security. Recent wins include Soldier Field, home of the NFL Chicago Bears and the Target Center, which is home of the NBA's Minnesota Timberwolves. We've also secured two recent wins across the NHL ice as the league prepares for the upcoming season. We've added the Honda Center, home of the Anaheim Ducks and the Canadian Life Center, home of the Winnipeg Jets. We're excited to welcome these teams and their fans on board.

Speaker Change: And they've been around for quite some time, they sell like a metal detector and the technology works like one so we do very well when we compete with them head to head, but in those very very price sensitive schools.

Peter George: So we do very well when we compete with them head-to-head, but in those very, very price-sensitive schools, they can be tough competition. So that hasn't changed. The good news is we're in lots more places, both by ourselves but also in a competitive environment. And the fact that people are taking security and putting it in their operating spend for security and not relying on ESSER grants and grant funding is, we think, a long-term trend that's really good for the business.

Speaker Change: They can be tough competition, so that hasnt changed.

Peter George: So that hasn't changed.

Peter George: The good news is we're in lots more places, both by ourselves, but also in a competitive environment. And the fact that people are taking security and putting it in their operating spend for security and not relying on lesser grants and grant funding, we think, is a long-term trend that's really good for the business.

Speaker Change: Good news is where we are and what's more places both by ourselves, but also in a competitive environment and the fact that people are taking security and putting it in their operating spend for security and not relying on that sort of ramps and grant funding. We think is a long term trend that's really good for the <unk>.

Speaker Change: Business.

Operator: Got it. Thanks for taking my questions.

Mark Donohue: Thanks for taking my questions. Yeah, thanks, Eric. Thanks, Eric.

Speaker Change: Got it thanks for taking my questions.

Operator: Thanks, Eric.

Eric Martin: Thanks, Eric.

Brian Norris: Thanks, Eric. I think that's our last caller. I'm going to turn it over to Peter for some closing remarks. Yeah. Thanks, Brian.

Peter George: We've also made substantial progress with our partnership with ASM Global, the global operator of live entertainment venues. ASM's venue network spans five continents, with a portfolio of more than 350 of the world's most prestigious arenas, stadiums, convention, and exhibition centers, and performing arts venues. We are ASM's preferred technology provider for patrons screening in North America. During the second quarter of 2024, we doubled the number of ASM properties we support to 16 sites.

Operator: I think that's our last caller.

Peter: Thanks, Eric I think Thats, our last caller I'm going to turn it over to Peter for some closing remarks, yes. Thanks, Brian look everyone just to finish up we feel really really good about the quarter right. It was highlighted by record revenues and record new customers and record adjusted EBITDA feel really good about that all the things that we outlined last quarter.

Peter George: I'm going to turn it over to Peter for some closing remarks. Yeah, thanks, Brian. Look, everyone, just to finish up, we feel really, really good about the quarter, right? It was highlighted by record revenues and record new customers and record adjusted EBITDA. Feel really good about that. All the things that we outlined last quarter and have been executing on this quarter, building installation backlog. I just mentioned having a strong book-to-bill is really important. We're doing that. We're accelerating the adoption of the distribution model. What's up to 40 percent? That's translating in gross margins and lots of good things in the business.

Peter George: Yeah, thanks, Brian. Look, everyone, just to finish up, we feel really, really good about the quarter, right? It was highlighted by record revenues and record new customers and record-adjusted EBITDA. We feel really good about that.

Peter George: All the things that we outlined last quarter and have been executing on this quarter, building installation backlog, I just mentioned, having a strong book to build is really important. We're doing that. We're accelerating the adoption of the distribution model. It's up to 40%.

Peter: Order and have been executing on this quarter building installation backlog I just mentioned, having a strong book to Bill is really important we're doing that we're accelerating the adoption of the distribution model was up to 40% that's translating into gross margins and lots of good things in the business and <unk>.

Peter George: That's translating into gross margins and lots of good things in the business. And just improving our overall sales execution, that work started three quarters ago, but it's starting to pay off in the business. And all of that contributed to having the quarter that we had this quarter.

Peter George: And just improving our overall sales execution. That work started three quarters ago, but it's starting to translate into the business. And all of that contributed to having the quarter that we had this quarter. So we're really confident in our guidance, as Mark reiterated. Our guidance, our plans for the year we feel confident in. We expect to get to cash low positive for adjusted EBITDA in Q2 of next year. And we're going to finish this year strong and position the company for future years as we chase the Rule of 40 as a company. So we appreciate everyone's support and attention.

Peter: Improving our overall sales execution that work started three quarters ago, but it is starting to translate into the business and all of that.

Peter George: I want to pivot and share some positive news on the innovation front. We recently released a major software update designed to further integrate Evolv Express into our customers overall security infrastructure. The update introduces new capabilities to the My Evolv portal and launches our new mobile app bringing the power of Evolv connected systems to our customers no matter where they are. It provides web and mobile visibility and configuration access to Evolv Express systems and dashboards for visitor flow, alarm statistics, event insights, threat type analysis, and system performance.

Peter: Tribute to having the quarter that we had this quarter. So we're really confident in our in our guidance as Marc reiterated our guidance our plans for the year. We feel confident then we expect to get to cash flow positive for adjusted EBITDA in Q2 of next year and we're going to finish this year.

Peter George: So we're really confident in our guidance. As Mark reiterated, our guidance, our plans for the year, we feel confident in. We expect to get to cash flow positive for adjusted EBITDA in Q2 of next year, and we're going to finish this year strong and position the company for future years as we chase the rule of 40 as a company. So we appreciate everyone's support and attention. We look forward to reporting again next quarter. And we're going to continue on the track to be a market leader in this space and keep people in places safer than ever before. Thanks, everybody.

Peter: Long and position the company for future years, as we chase the rule of 40 as a company. So we appreciate everyone's support and attention we look forward to reporting again.

Peter George: We look forward to reporting again next quarter, and we're going to continue on the track to be a market leader in a space and keeping people in places safer than ever before.

Peter: Next quarter, and we're going to continue on the track to be a market leader in this space and keep keeping people in places safer than ever before thanks, everybody.

Operator: Thanks, everybody.

Peter George: Key new features include market-specific default dashboards, an intuitive threat map report, automated screening reports, real-time data updates, and extended alert image data access. Because our customers are on long-term subscription contracts with us, they can easily take advantage of these breakthrough capabilities as they are released over time to our powerful cloud-based environment we've invested in over the last several years.

Operator: 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 conference is ending now. Please hang up.

Operator: That does conclude our conference for today. Thank you for your participation and for using the AT&T Conferencing Service. You may now disconnect.

Speaker Change: That does conclude our conference for today. Thank you for your participation and for using AT&T conferencing services you may now disconnect.

Peter George: One more update on the product development front. We remain on track to introduce by the end of the year new offerings which will provide additional capabilities to our customers and further extend the Evolv Echo system. We expect the subscription-based products which could be either physical or digital to be sold to new and existing customers expanding the lifetime value of our customers more to come on that.

Peter George: Before I hand things over to Mark, I'd like to reiterate the importance of our mission and this drives us every single day and that's the democratized security to make the world a safer, more enjoyable place to live, work, learn, and to play. We remain absolutely dedicated to filling this mission while continuing to innovate and achieving our long-term financial goals which includes delivering 25% revenue growth in 2024, delivering positive adjusted EBITDA in Q2 of 2025 and advancing on the rule of 40.

Speaker Change: We're sorry your conferences ending now please hang up.

Mark Donohue: With that, I'll turn it over to Mark to present our financial results and to our outlook. Mark, thanks Peter and good afternoon everyone. I'm going to review our second quarter results in more detail and then walk through our outlook. As Peter mentioned, total revenue was 25.5 million, up 29% year-of-year. In your recurring revenue or ARR as of June 30, 2024, it was 89 million, reflecting growth of 64% year-of-year. A approximately 83% of revenue in Q224 was recurring, versus 59% in Q223.

Mark Donohue: Further demonstrating the shift in our business model over the last 12 to 18 months. Remaining performance obligation or RPO as of June 30, 2024 was 263 million, up 33% year-over-year and 4% sequentially. As we've 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 of our P&L and more unit bookings go through the distribution model.

Mark Donohue: We expect the results to be faster growth in recurring revenue and higher overall growth margins for the business, which we saw again in Q2. Adjust the growth margin, which excludes stock-based compensation in certain other one-time expenses, was 58% in the second quarter of 2024, compared to 38% in the second quarter of last year. This primarily reflects our continued transition to recurring revenue streams, both through our pure subscription model and our newer distribution subscription model.

Mark Donohue: Adjusted operating expenses, which excludes stock-based compensation, loss on impairment of equipment, and certain other one-time expenses, which 26.5 million compared to 23.7 million in the second quarter of last year. The increase year-over-year primarily reflects modest headcount investments across the business. We continue to leverage AI-powered solution as an alternative to growing headcount where possible. Adjusted loss, which excludes stock-based compensation, non-cash charges, and other one-time items, was 11.1 million compared to 14.3 million in the second quarter of last year.

Mark Donohue: Adjusted EBITDA, which excludes stock-based compensation, non-cash charges, and other one-time items, was negative 7.9 million compared to negative 13.8 million in the second quarter of last year. This reflects strong revenue growth and gross margin expansion, along with prudent expense management. Turning to the balance sheet, we ended the quarter with 57 million in cash, cash equivalence, restricted cash and marketable securities, compared to 81 million at the end of Q1 2024, which reflects cash used in operations and cash used to support our pure subscription model.

Mark Donohue: As Peter indicated, we continue to expect to reach positive adjusted EBITDA in Q2 2025 with similar levels of cash on hand. Notably, we expect to achieve this without any additional debt financing. However, as the interest rate environment becomes more favorable, we are actively evaluating non-delutive forms of debt financing that may be attractive to our long-term capital needs. Any set action would be modest.

Mark Donohue: I want to close with a few comments on our outlook. We are encouraged by our performance in Q2, which played out largely as we expected. In the second half of the year, we will continue to focus on improving sales execution, raising grand awareness, driving demand generation, and optimizing our channel partner program. Ram. As such, we are reaffirming our guidance across the board. For the full year, we expected to deliver revenues of about 100 million, which reflects growth of 25% year-over-year.

Mark Donohue: We believe we are in an excellent position to achieve this goal given our first half performance and our outlook for the balance of the year. We continue to expect to exit 2024 with ARR of around 100 million, reflecting growth of about 33% year-over-year. Our estimate for adjusted full-year growth margin remains at about 60%. Further, we believe we can deliver improvements in full-year adjusted EBITDA, at least 40% in 2024. We believe we remain on track to reach positive adjusted EBITDA by Q2 of 25.

Brian Norris: With that, I'll turn the call back over to Brian. Thank you, Mark.

Operator: Eric, at this time, we would like to open the call up for Q&A.

Operator: So, I'm going to ask you to start the Q&A session, please. Thank you. If you wish to ask a question, please press one-then-zero in your telephone keypad. You may withdraw your question at any time, but repeating the one-zero command. If you're using a speaker phone, please pick up the answer before pressing the numbers. Once again, if you have a question, you may press one-then-zero at this time.

Operator: One moment, please, for the first question.

Jeremy Hamblin: And the first question to go from the line of Michael Attimore, please go ahead. Hi, this is Adityan, behalf of Michael Attimore. Could you give some color on the industrial warehouse vertical? What kind of catalyst is needed for acceleration in the industrial warehouse? I think you're asking the question about the vertical, the new vertical that we're opening up, the industrial warehouses. And what could be the catalyst for that? Is that your question?

Jeremy Hamblin: Yeah. So, look, it's still early days in that vertical. We have a dedicated team on that vertical. Post-COVID, that's a vertical that just exploded across North America. You know, it's still early days, but we expect in 2025 for this to be a really important, materially important vertical as it relates to revenue. And then the out years, along with education, be one of the top two verticals in the company.

Peter George: What is your daughter's sales pet cost? Yeah. So, let me talk about, so we have close to 150 people in our go-to-market team. And that includes sales and support and solutions, engineers and CSMs. In terms of quota-carrying salespeople, we have a couple of dozen quota-carrying salespeople across North America in the field. We have a channel team, as you know, about 70 percent of our business comes through channel partners. So, we have a dedicated channel team that's an overlay team.

Peter George: Our quota-carrying salespeople get full credit for all the revenue that comes through channel partners. We do sell direct to the sporting vertical, but that's the only place that we typically don't go through the channel. So, we have a very sizable team and they're getting operational leverage almost every quarter in the business.

Brett Knoblauch: Thank you, and the next question comes from a line of Brett Knoblauch with Cantor Fitzgerald. Hey guys, I think that's on the quarter.

Peter George: Maybe if we can just start with an update on the regulatory front. I know last quarter kind of dominated the release and regulatory overhangs causing sales cycles to lengthen. Given the new customers you landed, this quarter was the most you did in a good while. Could you maybe just update us on how sales cycles are performing, where we are in terms of the regulatory overhang. Have you heard back from the FTC or SEC yet?

Peter George: So look, we're in communication with the FTC and we continue to work closely with them, collaborate with them, and we're working towards a resolution. And as we've probably said before, typically the FTC, these are investigations that go on for 12 to 18 months. So we're still in that zone. And we're working towards a resolution so we feel good about it. On as it relates to our sales cycle, our sales cycle times haven't changed and the truth is we don't want to rush our customers.

Peter George: We're fully transparent with our customers. Most of them want to do their own trials and POCs. They want to go potentially to other like-minded schools or hospitals or places to see the system in action. And oftentimes they test it themselves. We don't want to rush that. Sales cycles have elongated, but not anymore than they were in Q2. What has changed, like in Q2, our close rate went up, if you may remember in Q2, that state constant, which is terrific.

Peter George: We have 100% close rate in the healthcare vertical. So our close rate is very, very high. And what we've done, our competition has weaponized the regulatory issues, and we're taking those on early in the sales cycle instead of being surprised at the end. And because of that, we're able to keep a high close rate and make sure that if there's a problem with a customer we find out early and not waste a lot of time if that's going to get in the way of the decision. So we're feeling good about where we are in terms of that sales execution in the marketplace because we're talking about the regulatory environment early with the customers.

Operator: Thank you.

Peter George: Then maybe if we can just touch on what's been very public over the last couple of months, and that's the New York City subway, the New York City mayor having a couple of press conferences standing next to one of your units and believe he started to deploy some of those units over the prior weeks. Could you just update us as to how do you guys find a contract with them? You know, how big is that contract with the terms or any color on your involvement there?

Peter George: Yeah, look, we're still working with what is arguably the best law enforcement agency in the country. We have a lot of confidence and their ability to protect New Yorkers on the subways and everywhere. As you probably know, we have a long history in New York City. We've been, it was one of our first places where our first customer Lincoln Center, which is a very visible place. And since then, you know, there have been museums and hospitals and tourist sites, all kinds of attractions, including sporting stadiums.

Peter George: We protect close to 14 million New Yorkers. And during that time over the last seven years, we've stopped 20,000 weapons from going into places. So we have a long history there. The New York police knows that. We're still working with them and letting them make the decisions that they need to to protect the citizens of New York. And we're going to continue to support them and we're confident that they're going to make a decision that's right for the city.

Peter George: And we're going to support whatever decision that is. But have they started already deploying your units in this always? They're still testing our systems. They have tested other companies as well. So you'll see our systems out there. They're in the middle of that, but it's still in its trial phase. I understand. Thank you. Appreciate it.

Jeremy Hamblin: Next question comes from the line of Jeremy Hamblin with Craig Hallum. Please go ahead. Thanks and congrats on the strong results. Just as a follow-up question on that last point, what have you seen in terms of imbound interest over the last couple of months? Certainly, I think at the least it's a nice validation for the technology to have a larger city in the country and such a large math commuter system using that.

Jeremy Hamblin: Wanted to just get a sense for your imbound interest that you've seen. Yeah, look, we started working with cities in the city of Detroit a couple of years ago, and the city of Detroit has dozens of our systems that they use to create safe places or safer zones in open places like the fireworks, for example. So we have a track record there, and now with what's happening in New York City, we are getting imbound through that brand awareness from other cities like in LA and other places that care about keeping their citizens face. So it's not included in our TAM when we talk about our TAM today, but as we start to make progress in cities, we'll talk about that as a vertical expansion opportunity in our TAM.

Operator: Got it.

Mark Donohue: And then I just wanted to get a sense in terms of your cash flow and inventory management. And as we think about the evolution of that here over the next three, four quarters, just to get a sense for where you are on your balance sheet and how you expect as you see conversion to more distributor deals versus subscription deals, how should we expect that to play out in terms of the quarter where you expect maybe cash and equivalence to bottom out?

Mark Donohue: And start to build back up kind of the timing on that and then kind of related to that question I suppose is, you know, where do you expect to be in terms of percentage of total deals distributor versus subscription at year end? Yeah, thanks for the question. You know, we talked about how we were going to end this quarter. We were at about 57 million in cash and cash equivalence. We had talked about being around in the 60 zip code.

Mark Donohue: So we had a little bit of extension and some of our accounts, accounts receivable receivable. You know, a lot of that was to was to finish buying this inventory build up that we did in the transition from generation one to generation two systems. We have seen an increase in the distribution model. It doubled from Q1 to Q2 from 20% to just over 40%. We were expecting this quarter to be in the 30% zip code.

Mark Donohue: But by the end of the year, we're hoping that it's that it's around 50% of the quarterly activity by Q4. And in terms of the cash hitting the bottom, I would say that, you know, we're probably going to see a little bit of a little bit more cash usage in Q3, but then kind of coming back and being around the 60 million zip code by the end of the year. We'll see a little bit of cash usage in Q1.

Mark Donohue: That's typical for us, but then kind of come popping back to about about the 60 million level when we hit profitability in Q2. So, you know, I really want to kind of hone in on this 60 million dollar level that I think we're going to be be achieving over the next four quarters given this. One of the key elements of what we're doing right now as this distribution model is popping up is moving some of our equipment, which was originally in fixed assets back to the inventory line.

Mark Donohue: So, you'll see on our balance sheet that the inventory line grew. It wasn't because we bought more systems. It's because we redistributed how they are on the balance sheet right now. And that's an anticipation of seeing more and more of this distribution activity. Just to remind you, we only keep things in fixed assets that are or will be subscription over the long term. But part of the deal here is we won't have any CAPX needs with regards to product, probably until going into next year.

Mark Donohue: We're building up credits based on the fact that we took on all the inventory with Columbia Technology, our contract manufacturer, and it'll take into the beginning and exterior to eat through those credits from an inventory perspective.

Operator: Got a great color.

Mark Donohue: Last one for me. Your G&A expense jumped a little bit here in Q2, you know, from a run rate that you kind of seen, you know, a steady progression made a bit of a jump there. Wanted to see if you could provide a little bit of color on that and then kind of how we should be thinking about that on a go-forward basis. Yeah, honestly on an adjusted level, it's relatively stable.

Mark Donohue: We actually had to do some estimates for legal settlements that we've been working through lately. There's a little bit related to stock compensation as well, but a lot of this is actually more in the reserve category than anything else. Great.

Operator: Thanks for the color and good luck the rest of the year. Thanks. You bet.

Hugh Cunningham: And the next question comes in line of Hugh Cunningham with TD Cohen. Please go ahead. Hey guys, thanks for taking my question. Congrats on a good quarter and nice to see the unit add tick back up and the guidance reaffirmation. Thank you. Good questions here. So first in term, it seems like CT, I know they're long term partner for you guys, but it seems like CT is sort of hitting an equilibrium point from an operating standpoint here.

Hugh Cunningham: How is that relationship going? And then Peter, you've hinted a few times on this, but the new products and the add-ons. I think last time we talked about the brandished weapon detection, and for me it's pretty interesting, all the other things you could add on, particularly given that you control such a valuable piece of real estate.

Mark Donohue: Yeah, let me, I think Peter and I'll tag team with this one a little bit out, I'll start out with a little bit about Columbia Tech and then maybe Peter, you can take on some of the new product discussion that we're going through. You know, in terms of Columbia technology, they are a very important partner to us. They are 30 minutes down the street from our organization. We've been working closely with them over the last, you know, really since the inception of the company to help build our products.

Mark Donohue: And at the current levels that we build and the expertise that we need in launching new products, they're the right partner for us. There's no doubt about it, and we have a lot of confidence in them and we work closely with them on all of this. And as we think about more products coming out, it's also important that we kind of have that relationship. You know, it's not that we won't think about things going forward when the time is right, about expanding our relationships with contract manufacturers, but right now, we are far from hitting the point where Columbia Tech can't help us on our volume levels.

Peter George: Right, and here in terms of new products, so as you know, we announced Visual Gun Detect, which is basically identifying detecting brandish weapons or open carry weapons as people approach the egress where of all the expresses and making a connection between that identification on our tablet is really important and revolutionary in the industry. So those products are already out there. We're starting to see visual gun detection, help our pipelines who are starting to see new opportunities.

Peter George: And what's interesting is we're getting pulled into deals. And if they're not ready to make a decision on evolved express to find concealed weapons, oftentimes, they're very ready to make an investment in open carry. And so that's becoming the first product. So we're seeing it in our pipeline today. In terms of the rest of the year, we've said that we're going to be coming out with one, maybe two new products before the year ends.

Peter George: That is on track. They may be both digital and physical, but we're excited about that and what it could mean for our customers. But also, you know, 45% of our businesses this quarter was on expansion capabilities from our existing customers on express systems and visual gun detect. They also want more to your point. So expanding that RPU, becoming more sticky on renewal time, all those things will be real advantages for us as those become important metrics that we report going forward. So before the end of the year, expect to see one or two new products that could sit on that digital platform or be connected to the evolve system.

Hugh Cunningham: What is the reason behind Motorola's momentum? Well, a fair leader in the space, right? And they have an enviable position with body cameras, with all kinds of technology. And, you know, the OEMR products and AI weapons detection is a big and growing market and they have a big and growing organization of both direct salespeople in Motorola, selling an end-to-end safety system and also 2,000 channel partners that want to deliver on that promise.

Hugh Cunningham: So their size, their market leadership in the safety and security area, their existing relationships with customers, their best in class brand, all make it a natural partner for us and we're starting to see a lot of traction there, which is great. Awesome. Thanks, Peter. Good luck, guys. Thank you. And once again, as a reminder, if you have any questions, please press one then zero at this time.

Peter George: Our next question comes from line of Eric Martinuzzi, please go ahead. Yeah, you spoke to the better linearity in Q2, just wondering how Q3 is starting out. What trends are you seeing in July? Yeah, look, we were really, really pleased with, you know, our business in the early part of the quarter, which we're starting to see, repeatable months, you know, moving up into the right. That momentum is continuing and we're seeing it already in this quarter.

Peter George: So we're expecting that to continue all the work that our sales and marketing organization have been doing to build pipeline to increase their close rate is now starting to translate into the business. And the thing we love the most here is this linearity, which will allow us to build backlog going forward, which is something we like a lot, obviously. So continue to watch that. You can watch our RPO and our bookings continue to grow over the rest of the year.

Eric Martinuzzi: Let's call you talked a little bit about the competitive landscape, especially in education, curious to know if you're seeing kind of a pricing, stabilizing environment, or still aggressive pricing in the education space. Look, I would say the competitive landscape hasn't changed, you know, our major competitor is a security legacy screening company. And they've been around for quite some time. They sell a like a metal detector and the technology works like one.

Eric Martinuzzi: So we do very well when we compete with them head to head, but in those very, very price sensitive schools, they can be tough competition. So that hasn't changed. The good news is we're in lots more places, both by ourselves, but also in a competitive environment. And the fact that people are taking security and putting it in their operating spend for security and not relying on lesser grants and grant funding, we think is a long-term trend that's really good for the business. Thanks for taking my questions. Yeah, thanks, Eric. Thanks, Eric.

Operator: I think that's our last caller.

Peter George: I'm going to turn it over to Peter for some closing remarks. Yeah, thanks, Brian. Look, everyone, just to finish up, we feel really, really good about the quarter, right? It was highlighted by record revenues and record new customers and record adjusted EBITDA. Feel really good about that. All the things that we outlined last quarter and have been executing on this quarter, building installation backlog. I just mentioned having a strong book to bill is really important.

Peter George: We're doing that. We're accelerating the adoption of the distribution model. What's up to 40 percent? That's translating in gross margins and lots of good things in the business. And just improving our overall sales execution. That work started three quarters ago, but it's starting to translate into the business. And all of that contributed to having the quarter that we had this quarter. So we're really confident in our guidance, as Mark reiterated, our guidance, our plans for the year we feel confident in.

Peter George: We expect to get to cash low positive for adjusted EBITDA in Q2 of next year. And we're going to finish this year strong and position the company for future years as we chase the rule of 40 as a company. So we appreciate everyone's support and attention. We look forward to reporting again next quarter and we're going to continue on the track to be a market leader in a space and keeping people in places safer than ever before. Thanks, everybody.

Operator: That does conclude our conference for today. Thank you for your participation and for using AT&T Conferencing Service. You may now disconnect.

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