Evolv Technologies Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 9 speakers on the call.

Operator

Officer and Mark Donahue, our Chief Financial Officer. This afternoon after the market closed, we issued a press release announcing our results for the Q2 of 2024, as well as our business outlook for the remainder of the year. This press release has been furnished with the SEC and is also available on our 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. 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.

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 10 ks for the year ended December 30 1, 2023 filed with the SEC on February 29, 2024 and our quarterly report on Form 10 Q for the 3 months ended June 30, 2024, which we filed with the SEC earlier today. The 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 may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances.

Operator

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 adjusted EBITDA, adjusted earnings and adjusted earnings per diluted 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 such key metrics 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 that we are making as a business.

Operator

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

Speaker 1

Thank you, Brian, and thanks 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 2nd quarter was a record $25,500,000 up 29% year over year and 18% sequentially, reflecting strong new customer acquisition activity, continued expansion from our installed customer base growth in subscriptions of Evolv Express. We added 84 new customers in Q2 and now serve over 800 customers across 10 key vertical markets.

Speaker 1

This is the highest number of new customers in a quarter since the Q4 of 2022. ARR grew to $89,000,000 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 reoccurring revenue. I'll touch more on this in a few moments.

Speaker 1

We activated 4 41 new multiyear subscriptions of Evolve Express in Q2 compared to 377 in Q1. We believe this is an encouraging bounce back on this key metric. Evolve Express was used to screen on average nearly 3,000,000 visitors a day in Q2. Our customers are using Evolve Express to tag on average more than 500 firearms every single day. We continue to demonstrate the leverage in our business model and delivered adjusted EBITDA of negative $8,000,000 compared to negative $14,000,000 a year ago.

Speaker 1

We believe we're continuing our steady march to reaching positive adjusted EBITDA by Q2 of 2025. I want to turn and discuss the key drivers we're seeing in the business. I'll start with the 3 key focus areas we discussed on our last earnings call. Number 1, building installation backlog 2, driving accelerated adoption of our distribution model and 3, 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 which enables us to improve the overall predictability and efficiency of the business.

Speaker 1

We're pleased to report that we continue to make very good progress on this initiative, which in turn helps us drive increased visibility. 2nd, 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. 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 Evolve in Action stadium tour program and working with our partners to drive stronger channel partner effectiveness.

Speaker 1

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 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.

Speaker 1

These are partners that extend our reach in certain verticals or geographies where they have a particularly strong presence. 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 twenty twenty four compared to the first half of twenty twenty three. 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.

Speaker 1

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 3 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 1 or 2 year renewal contract. We have about 60 units up for renewal in the second half of the year.

Speaker 1

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. 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 1

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 Evolve Express 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 larger school district phase their deployments over multiple quarters.

Speaker 1

So while we are winning large opportunities, they do not always show up as ARR or deploy units in any single quarter. 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 projects funding. This can make Evolve more embedded in the district's standard purchasing motion as opposed to a one time grant. We routinely screen between 60700,000 students, teachers, administrators and other school visitors every day compared to about 250,000 a day in the Q2 of last year.

Speaker 1

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

Speaker 1

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 Q2 of last year. 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 Soetjer Field, home of the NFL Chicago Bears and the Target Center, which is home of the NBA's Minnesota Timberwolves. We've also secured 2 recent wins across the NHL ICE as the league prepares for the upcoming season.

Speaker 1

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 5 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 patron screening in North America.

Speaker 1

During the Q2 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 Evolve Express into our customers' overall security infrastructure. The update introduces new capabilities to the MyEvolve portal and launches our new mobile app, bringing the power of Evolve 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.

Speaker 1

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. 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 evolved ecosystem. 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.

Speaker 1

More to come on that. 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 to democratize 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. With that, I'll turn it over to Mark to present our financial results and our outlook.

Speaker 1

Mark?

Speaker 2

Thanks, Peter, and good afternoon, everyone. I'm going to review our 2nd quarter results in more detail and then walk through our outlook. As Peter mentioned, total revenue was $25,500,000 up 29% year over year. Annual recurring revenue or ARR as of June 30, 2024 was $89,000,000 reflecting growth of 64% year over year. Approximately 83% of revenue in Q2 'twenty four was recurring versus 59% in Q2 'twenty three, further demonstrating the shift in our business model over the last 12 to 18 months.

Speaker 2

Remaining performance obligation or RPO as of June 30, 2024 was $263,000,000 up 33% year over year and 4% sequentially. As we have been sharing with our investors on prior calls, we continue to expect the rate of growth in RPO to temper as lower margin hardware revenue begins to come off of our P and 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 Q2 of 2024, compared to 38% in the Q2 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.

Speaker 2

Adjusted operating expenses, which excludes stock based compensation, loss on impairment of equipment and certain other one time expenses were 26,500,000 dollars compared to $23,700,000 in the Q2 of last year. 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 headcount where possible. Adjusted loss, which excludes stock based compensation, non cash charges and other one time items was $11,100,000 compared to $14,300,000 in the Q2 of last year. Adjusted EBITDA, which excludes stock based compensation, non cash charges and other one time items was negative $7,900,000 compared to negative $13,800,000 in the Q2 of last year.

Speaker 2

This reflects strong revenue growth and gross margin expansion along with prudent expense management. Turning to the balance sheet, we ended the quarter with $57,000,000 in cash, cash equivalents, restricted cash and marketable securities compared to $81,000,000 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 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.

Speaker 2

Any such action would be modest. 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.

Speaker 2

For the full year, we expect to deliver revenues of about $100,000,000 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 $100,000,000 reflecting growth of about 33% year over year. Our estimate for adjusted full year gross margin remains at about 60%. Further, we believe we can deliver improvements in full year adjusted EBITDA of at least 40% in 2024.

Speaker 2

We believe we remain on track to reach positive adjusted EBITDA by Q2 of 'twenty five. With that, I'll turn the call back over to Brian.

Operator

Thank you, Mark. Eric, at this time, I'd like to open the call up for Q and A. So I'm going to ask you to start the Q and A session, please.

Speaker 2

Thank

Speaker 3

And the first question will go from the line of Mike Latimore. Please go ahead.

Speaker 4

Hi, this is Aditya on behalf of Mike Latimore. Could you give some color on the industrial warehouse vertical? What kind of catalyst is needed for acceleration in the industrial warehouse?

Speaker 1

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? Yes. So look, it's still early days in that vertical. We have a dedicated team on that vertical.

Speaker 1

Post COVID, that's a vertical that just exploded across North America. It's 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 Yes. So let

Speaker 4

me talk about,

Speaker 1

Yes. 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% of our business comes through channel partners.

Speaker 1

So we have a dedicated channel team that's an overlay team. Our quota carrying sales people 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.

Speaker 3

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

Speaker 5

Hey, guys. Congrats on the quarter. Maybe if we can just start with an update on the regulatory front. I know last quarter kind of dominated the release in 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?

Speaker 5

Where we are in terms of the regulatory overhang? Have you heard back from the FTC or SEC yet?

Speaker 1

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.

Speaker 1

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. The sales cycles have elongated, but not any more than they were in Q2.

Speaker 1

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 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 were 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.

Speaker 1

So it 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 5

Got it. And 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 with the New York City Mayor having a couple of press conferences standing next to one of your units and believe you started to deploy some of those units over the prior weeks. Could you just update us as to, have you guys signed a contract with them? How big is that contract? What are the terms?

Speaker 5

Or just any color on your involvement there?

Speaker 1

Yes. 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. We've been it was one of our first places where our first customer Lincoln Center, which is a very visible place.

Speaker 1

And since then, there have been museums and hospitals and tourist sites, all kinds of attractions, including sporting stadiums, where we protect close to 14,000,000 New Yorkers. And during that time over the last 7 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.

Speaker 1

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 5

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

Speaker 1

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

Speaker 5

trial phase. Understood. Thank you. Appreciate it.

Speaker 2

All right.

Speaker 3

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

Speaker 6

Thanks and congrats on the strong results. 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 largest city in the country in such a large mass commuter system using that. Wanted to just get a sense for your inbound interest that you've seen.

Speaker 1

Yes. 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 inbound through that brand awareness from other cities like in LA and other places that care about keeping their citizens safe.

Speaker 1

So we 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 we'll talk about that as a vertical expansion opportunity in our TAM.

Speaker 6

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 3, 4 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 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 where do you expect to be in terms of percentage of total deals, distributor versus subscription at year end?

Speaker 2

Yes. Thanks for the question. We had talked about how we were going to end this quarter. We were at about $57,000,000 in cash and cash equivalents. We had talked about being around in the 60 zip code.

Speaker 2

So we had a little bit of extension in some of our accounts receivable. A lot of that was to finish buying this inventory buildup that we did and the transition from generation 1 to generation 2 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.

Speaker 2

But by the end of the year, we're hoping that it's around 50% of the quarterly activity by Q4. And in terms of the cash hitting the bottom, I would say that we're probably going to see a little bit more cash usage in Q3, but then kind of coming back and being around the 60,000,000 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 $60,000,000 level when we hit profitability in Q2.

Speaker 2

So I really want to kind of hone in on the $60,000,000 level that I think we're going to be achieving over the next 4 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. 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 in anticipation of seeing more and more of this distribution activity.

Speaker 2

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 CapEx 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 will take into the beginning of next year to eat through those credits from an inventory perspective.

Speaker 6

Got it. Great color. Last one for me. Your G and A expense jumped a little bit here in Q2 from a run rate that you kind of a steady progression, made a bit of a jump there. I 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?

Speaker 2

Yes. 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. You bet.

Speaker 3

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

Speaker 7

Hey guys, thanks for taking my question. Congrats on a good quarter and nice to see the unit adds tick back up and the guidance reaffirmation. Thank you. Good questions here. So first, in term 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.

Speaker 7

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

Speaker 2

valuable piece of real estate. Yes. 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. In terms of Columbia Technology, they are a very important partner to us.

Speaker 2

They are 30 minutes down the street from our organization. We've been working closely with them over the last 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 very we have a lot of confidence in them and we work closely with them on all of this.

Speaker 2

And as we think about more products coming out, it's also important that we kind of have that relationship. 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.

Speaker 1

Great. And Hugh, 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 Evolve 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, 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 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.

Speaker 1

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 1, maybe 2 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, 45% of our business this quarter was on expansion capabilities from our existing customers on Express Systems and Visual Gun Detect.

Speaker 1

They also want more to your point. So expanding that ARPU, 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 1 or 2 new products that could sit on that digital platform or be connected to the EVOLVE system.

Speaker 7

Awesome. Thanks, Peter. Thanks, Mark. Guys, Chris, one more question.

Operator

What is the strength

Speaker 7

behind what is the reason behind Motorola's momentum?

Speaker 1

Well, look, they're a leader in the space, right? And they have an enviable position with body cameras, with all kinds of technology. And they OEMR product and AI weapons detection is a big and growing market and they have a big and growing organization of both direct sales people 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, their best in brand, 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 7

Awesome. Thanks, Peter. Good luck, guys.

Speaker 1

Thanks, Hugh. Thank you.

Speaker 3

Our next question comes from the line of Eric Martinuzzi. Please go ahead.

Speaker 8

Yes. You spoke to the better linearity in Q2. Just wondering how Q3 is starting out. What trends are you seeing in July?

Speaker 1

Yes. Look, we were really, really pleased with 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. 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 1

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 8

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 the education space?

Speaker 1

Look, I would say the competitive landscape hasn't changed. Our major competitor is a security legacy screening company, and they've been around for quite some time. They sell like a metal detector and the technology works like 1. 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.

Speaker 1

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 grant funding, we think is a long term trend that's really good for the business.

Speaker 8

Got it. Thanks for taking my questions.

Speaker 1

Yes. Thanks, Eric.

Operator

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

Speaker 1

Yes. Thanks, Brian. Look, everyone, just to finish up, we feel really, really good about the quarter, right? It was highlighted by record revenues 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.

Speaker 1

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. It's up to 40%. That's translating into gross margins and lots of good things in the business and just improving our overall sales execution.

Speaker 1

That work started 3 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 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.

Speaker 1

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.

Speaker 3

That does conclude our conference for today. Thank you for your participation and for using AT and T conferencing service. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Evolv Technologies Q2 2024
00:00 / 00:00