Evolv Technologies Holdings, Inc. Q2 FY2024 earnings call

• Record revenue of $25.5 million in Q2, up 29% YOY and 18% sequentially.
• ARR reached $89 million, up 64% YOY.
• Adjusted gross margin improved to 58% in Q2 from 38% in Q2 last year, driven by accelerated adoption of the distribution subscription model.
• Focus areas: Building installation backlog, accelerating adoption of distribution model (over 40% of units booked in Q2 via distribution model), and improving sales execution with enhanced demand generation, expanded pipeline, and stronger channel partner effectiveness.
• End markets: Education added 28 new customers in Q2 with 60% of units sold to education using distribution model; healthcare added a dozen new customers and screens ~700,000 daily; professional sports and live entertainment secured wins like Soldier Field and Target Center, and doubled ASM Global properties supported to 16.
• Innovation: Released software update with new capabilities in MyEvolv portal and mobile app, and on track to introduce new offerings by year-end to expand customer lifetime value.

Revenue in the second quarter was a record $25.5 million, up 29% year-over-year and 18% sequentially. Annual recurring revenue (ARR) grew to $89 million as of June 30, 2024, up about 64% year-over-year and 8% sequentially. Adjusted gross margin expanded to 58% in Q2 compared to 38% in Q2 of the previous year. Evolv Express activated 441 new multiyear subscriptions in Q2, and was used to screen nearly 3 million visitors a day on average. Revenue contribution details weren't specified per segment, but key metrics like ARR and gross margin were highlighted.

• Reaffirmed full-year revenue guidance of ~$100 million, reflecting 25% YOY growth.
• Expect ARR to reach ~$100 million by end of 2024, up ~33% YOY.
• Adjusted full-year gross margin estimated at ~60%.
• Aim to achieve positive adjusted EBITDA by Q2 of 2025.
• Expect improvements in full-year adjusted EBITDA of at least 40% in 2024.

Forward-looking statements are subject to material risks, uncertainties, and assumptions beyond control, including those set forth in the annual report on Form 10-K for the year ended December 31, 2023, and quarterly report on Form 10-Q for the three months ended June 30, 2024.

Q: Color on the industrial warehouse vertical and catalyst for acceleration?

A: Still early days, dedicated team working on it. Post-COVID, vertical exploded, expected to be materially important in 2025 and one of top two verticals in out years.

Q: Total sales headcount?

A: Close to 150 in go-to-market team including sales, support, etc. Dozens of quota-carrying salespeople in field, channel team with 70% of business through partners.

Q: Update on regulatory front and sales cycles?

A: In communication with FTC, working towards resolution. Sales cycles haven't changed, close rate high in Q2, talking regulatory early in sales cycle.

Q: New York City subway deployment?

A: Still testing systems, in trial phase, long history in NYC with over 20,000 weapons stopped in 7 years.

Q: Inbound interest from New York City?

A: Getting inbound from other cities like LA due to brand awareness from NYC work, not included in TAM yet but seen as vertical expansion opportunity.

Q: Cash flow, inventory management, and distributor vs subscription deals?

A: Cash at end of quarter $57 million. Distribution model doubled from Q1 to Q2 to over 40%, expecting ~50% by year-end Q4. Cash expected to be around $60 million level in next quarters, inventory line grew due to redistributing equipment on balance sheet.

Q: G&A expense jump in Q2?

A: On adjusted level relatively stable, includes estimates for legal settlements and stock compensation in reserve category.

Q: New products and Motorola's momentum?

A: Visual Gun Detect product helping pipeline, on track to release 1-2 new products by year-end. Motorola's momentum due to market leadership, existing relationships, and 2,000 channel partners wanting to deliver safety system.

Q: Q3 trends and competitive landscape in education?

A: Q3 starting with continuing momentum, linearity improving. Competitive landscape with legacy security company, tough in price-sensitive schools, but long-term trend of security in operating spend is good for business.