Thank you for standing by, ladies and gentlemen, and welcome to the Evolv Technologies First Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Senior Vice President of Finance and Investor Relations for Evolv Technologies, Brian Norris.

Thank you, Ryan, and good afternoon, everyone, and welcome to the call. I'm joined here today by Peter George, our President and Chief Executive Officer; and Mark Donohue, our Chief Financial Officer. This afternoon, after the market closed, we issued a press release announcing our first quarter 2024 results and our business outlook for the remainder of the year. Press release has been furnished with the SEC and is also available on the IR section of our website. During today's call, we will make forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to our current expectations and views of future events, including, but not limited to, statements regarding our future operations, growth and financial results, our potential for growth and ability to gain new customers, demand for our products and offerings and our ability to meet our business outlook. All forward-looking statements are subject to material risks, uncertainties and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from those forward-looking statements because of a number of risks and uncertainties, including, without limitation, the risk factors set forth under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024, and our quarterly report on Form 10-Q for the three months ended March 31, 2024, filed with the SEC earlier today. The forward-looking statements made today represent our views as of May 9, 2024, although we believe that the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance or the events and circumstances reflected in our forward-looking statements will be achieved or will occur. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which we believe provide additional insights for investors. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA, adjusted earnings and adjusted earnings per diluted share. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We will be discussing key metrics such as annual recurring revenue, or ARR, remaining performance obligation, or RPO, deployment activity and total number of subscriptions, each of which we believe is helpful to investors in understanding the progress we are making as a business. With that, I'd like to turn the call over to Peter. Peter?

Thank you, Brian, and thanks, everyone for joining us today. I'm going to spend a few minutes on our Q1 results, provide a brief update on the regulatory front, and then walk through the trends that we're seeing in the business. Mark will then walk through our financial results and our outlook. Revenue in the first quarter was $21.7 million, up 17% year-over-year, reflecting new customer acquisition activity, strong expansion from our installed customer base, continued traction with our channel partners and growth in subscriptions of Evolv Express. Our growth rate reflects the transition away from onetime product sales, which was central to our revenue just a year ago. Reoccurring revenue was 89% in Q1 compared to about 50% in Q1 of last year. We welcomed over 50 new customers in Q1 and now serve about 750 customers across 10 key vertical markets. ARR grew 10% sequentially and 96% year-over-year to $83 million at the end of the first quarter of 2024. Adjusted gross margin expanded to 61% in Q1 compared to 26% in Q1 of last year. This is largely attributable to the shift to the description -- distribution subscription model we introduced last year and the related transition to a higher level of reoccurring revenue. We activated 377 new multiyear subscriptions of Evolv Express, which is lighter than we were anticipating for the quarter. Notably, this figure excludes units from the high number of direct rentals we shipped. Since the year began, we've sent about 75 Evolv Express systems to support major events, including the world's largest sporting event taking place in France and to the Detroit Police Department in support of the annual college football draft. Rentals like these accelerate our presence in a geography and further raise awareness of Evolv Technology. Again, none of these units…

Thanks, Peter, and good afternoon, everyone. I'm going to review our first quarter results in more detail and then walk through our outlook. As Peter mentioned, total revenue was $21.7 million, up 17% year-over-year. Annual recurring revenue, or ARR, at March 31, 2024, was $83 million, reflecting growth of 96% year-over-year. Total recurring revenue during the first quarter of 2024 was $19.4 million compared to $9.1 million in the first quarter of 2023, reflecting growth of 114% year-over-year. Of note, 89% of our revenue in Q1 '24 was recurring compared to about 50% in Q1 '23. Remaining performance obligation, or RPO, as of March 31, 2024, was $254 million, up 57% year-over-year and 6% sequentially. As we've told investors on prior calls, we expect the rate of growth in RPO to attenuate as there is less lower margin product revenue running through our financial statements with the implementation of the distributor subscription model. Adjusted gross margin, which excludes stock-based compensation and other onetime expenses, was 61% in the first quarter of 2024 compared to 26% in the first quarter of last year. Our improved gross profit and gross margin 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 onetime expenses, were $27.3 million compared to $22.2 million in the first quarter of last year. The increase year-over-year primarily reflects headcount investments across the business, particularly in revenue-generating positions and in research and development. The increase sequentially is also due to a higher payroll tax comment at the start of the new year. Adjusted loss, which excludes stock-based compensation, noncash charges and other onetime items, was $13.1 million compared to $16.9 million in the…

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

[Operator Instructions] Our first question will come from the line of Mike Latimore with Northland Capital. Please go ahead. Your line is open.

Hi. This is Aditya (ph) on behalf of Mike Latimore. Could you tell me how many salespeople you have hired this year? And what is the total number of salespeople you have?

This is Brian Norris. I just want to make sure that I got the question. Was it quota-carrying salespeople now? And is that the question, how many folks do we have?

Yes.

So the answer to that question is we have about 35 quota-carrying sales executives, which is relatively unchanged since the end of last year.

All right. Got it. And also, could you give us some color on how the industrial warehouse category is? Do we see a good amount of bookings coming from the industrial warehouse?

Yes. We're just beginning the industrial warehouse vertical orientation, which is how we go to market on verticals. We think it can be in one of the top two verticals over time for the company. Obviously, education is very big, health care, but industrial warehouses is going to be a big one. So it's still early days, but we're confident that both this year and next year, we'll make good progress there.

All right. Got it. Thank you.

Perfect. Thank you. Operator, we're ready for the next question, please.

And the next question comes from the line of Brett Knoblauch. Please go ahead. Your line is open.

Hi, guys. Thanks for taking my question. Maybe if we could just start on the full year guidance. I guess my math kind of suggest that to get to $100 million ARR, you need to add maybe 1,100 new units over the remaining three quarters, which obviously is down a good bit from last year. But I guess to that extent, how confident are you that maybe Q1 is the low point from installs or is that what we should be expecting?

Yeah, Brett. Thanks. This is Mark Donohue. Look, we feel like we are at a low point. We do. We do for this quarter. I mean, I think Q1 is seasonally a low quarter for us. I think we saw some of the extensions of the deals, which have gone out from 3.5 months to five months actually coming in, in the April time frame. So we're starting to see that tick up a bunch and give us some confidence going into Q2. That said, you're right. I think that -- I think for the year, we're looking probably in the 16,00- to 1,900-unit range or 6,100 to 6,400 for the year as we kind of work through this -- the sales cycle extensions and some of the regulatory overhang that we've been going through. We've had good conversations with customers when we get on the phone with them and we do often now as they're going through their buying cycle, the conversations go well, and we're getting to a close. It's just taking a little bit more time than it used to. In fact, we had -- our win rates overall were about 79% in Q1 for the deals that we're invited to. So we're still getting this done. It's just going a little bit slower right now due to some of the, I would say, slanted media and regulatory overhang that we're dealing with.

Awesome. And then I guess within the hospital segment, I went to a hospital last week and -- which was the second time I went there over the last month, and there was a new unit there. And it was very seamless. I was just curious on the sales cycles. Is that specific to one end market or are you seeing it across the board?

Yeah. I would say it's across the board. The longer impacts have been actually in education because of -- they end up being longer anyway. Health care sales cycle is still about five months. On the positive side, we had an extraordinary quarter in health care as it relates to win rate. We won close to 100% of the deals that we were in. As we said earlier, we're in 350 hospital buildings right now. We see that as a really, really important vertical for us. It represents 70% of the violence at the workplace is happening in health care. And when we put a system in, normally, our customers test it first, they'll do a POC and then in their first early days of having the system in, they end up finding things that they never thought were coming in before. So it's hard to get the system back out. So we think hospitals is a place we're going to continue to double down on.

Yeah. I'd only add to that, Brett, that we're also starting to see sales cycles engage at the hospital system level. So that's a difference from a year or 18 months ago when we were selling at the local hospital level. Today, we're starting to see much bigger opportunities emerge. Is there any follow-up questions there, Brett?

Maybe just one on a different topic. I think it was about a month ago, maybe a bit over a month ago now where Mayor Adams gave a conference press conference -- a speech talking about subway safety and he was standing next to the Evolv system. Could you talk about how you view your product protecting subways in New York City and other metro areas across the United States and is there any update on New York City in particular?

Yeah. So look, we've always said we believe before and we believe today that subways are a challenging environment for security, period. Having said that, the NYPD came to us, they wanted to partner with us. They asked us to use our technology. We're supporting them. And we have full confidence that the NYPD knows how to keep New Yorkers safe, and we're going to support them from a technology standpoint. They're still in their investigation and learning phase right now.

Okay. Thank you. I’ll hop back in queue.

And Brett, before we get to the next question, I'll just say that none of the public transit opportunity is included in the TAM analysis that we've ever shared with the Street. And so all that -- again, we're still going through our testing phases there. All of that would be accretive to the TAM estimates that we've provided. More to come on that in the quarters ahead. Ryan, I think we're ready for our next question, if there's anybody left in the queue.

Our next question will come from the line of Eric Martinuzzi with Lake Street. Please go ahead. Your line is open.

Yeah. Curious to know about the pricing environment. And if you could comment on it with regard to both the education and the health care verticals, are you seeing prospective buyers coming back and asking for lower prices? Or are you seeing competitive behaviors that you haven't seen before?

Well, we've been seeing some competitive behaviors, I think we haven't seen before. We've seen more and more pricing competition in some of the deals. I think there's a clear technology benefit to what we're doing. So I think the comparative on the technical perspective is very high. But from a pricing perspective, we are a premium priced product. We have, though, gone and been amenable to pricing and particularly in the school systems where there's a lot of volume. So that we have actually gone down that path to work with our customers and prospects to actually kind of ensure that we're mitigating the delta between some of the competition out there. In other verticals, there's still -- we're still able to maintain pricing because of the value we're providing. The throughput that we can provide and the technical differentiators, I think, still are helpful to maintaining our pricing position.

And it's safe to say that those -- in the education environment in those volume-based deals that the potential lower prices is captured in this outlook, the new outlook for '24?

Yeah, 100%. I mean we have our pricing, and we did that in January. So everything that is in our outlook and has been in our outlook reflects our pricing model for the entire year.

Okay. And then a follow-up on the path to adjusted EBITDA breakeven in the first half of 2025. What should we be looking for on the cash balance when you reach that point?

I think that you'll see us in the range of $65 million to $75 million as a cash balance. We look at the top line revenue necessity probably being in the $32 million to $35 million range to actually reach that EBITDA neutrality, well, probably slightly EBITDA positive and cash neutrality. So that's still our goal as a business. We're going to get there by really maintaining judicious spending habits as we have in the past. I would say also that we're going to really be looking to ensure that we stay on this path to profitability that we announced about a year ago.

Got it. Thanks for taking my question.

Yeah.

Terrific. I think that's the last question. So I'm going to turn it over to Peter for a few closing remarks.

Thanks a lot, Brian. Look, we delivered really strong reoccurring revenue this quarter. Our gross margins went up, adjusted EBITDA, but the year started a little bit lighter and slower than we expected. There certainly has been a lot of evidence of regulatory overhang, which is shown up in that expanded sales cycle from three months to five months and we're dealing with that. We stay very, very focused right now on improving our sales execution. As we mentioned earlier, we added some senior leadership there that are making a big difference already. We remain really committed to our long-term operating model and our Rule of 40. And as Mark just mentioned, getting to EBITDA positive in the second quarter of 2025. And finally, this is all about our mission, making the world a safer place for people to live, work, learn and play together, and we feel honored to have that mission in the company. So thank you, everyone.

Ladies and gentlemen, that does conclude today's conference. I'd like to thank you for your participation. You may now disconnect.