Evolv technology reports record first quarter financial results
Waltham, mass.--(business wire)--evolv technology (nasdaq: evlv), the leader in ai-based weapons detection security screening, today announced financial results for the quarter ended march 31, 2023 and raised its business outlook for 2023. results for the first quarter of 2023 total revenue for the first quarter of 2023 was $18.6 million, an increase of 113% compared to $8.7 million for the first quarter of 2022. annual recurring revenue (“arr”)1 was $42.0 million at the end of first quarter of 2023, an increase of 153% compared to $16.6 million at the end of the first quarter of 2022. net loss for the first quarter of 2023 was $(28.6) million, or $(0.20) per basic and diluted share, compared to net loss of $(13.8) million, or $(0.10) per basic and diluted share, in the first quarter of 2022. adjusted earnings (loss)3 for the first quarter of 2023 was $(16.9) million, or $(0.12) per diluted share, compared to adjusted earnings (loss)3 of $(18.5) million, or $(0.13) per diluted share, for the first quarter of 2022. adjusted ebitda3 for the first quarter of 2023 was $(15.4) million compared to $(17.3) million in the first quarter of 2022. cash and cash equivalents as of march 31, 2023 was $182 million which reflected the company's decision to pay off its $30 million debt facility during the first quarter of 2023. the company had no debt as of march 31, 2023. the following table summarizes the breakdown of recurring and non-recurring revenue4 during each quarter: three months ended march 31, 2023 2022 % change recurring revenue $ 9,075 $ 3,159 187 % non-recurring revenue 9,506 5,551 71 % total revenue $ 18,581 $ 8,710 113 % the following table summarizes operating cash flows during each quarter: three months ended march 31, 2023 2022 net loss $ (28,609 ) $ (13,801 ) non-cash (income) expense 14,005 (5,126 ) changes in operating assets and liabilities 11,170 (10,503 ) net cash used in operating activities $ (3,434 ) $ (29,430 ) company raises outlook for 2023 the company today commented on its business outlook for 2023. the company's outlook is based on the current indications for its business, which may change at any time. 2023 business outlook estimate (in millions) issued march 1, 2023 issued may 10, 2023 total revenue $55-$60 $60-$65 annual recurring revenue1 (arr) at 12/31/23 $65-$70 $67-$71 adjusted gross margin3 30%-35% 35%-40% adjusted ebitda3 ($55-$60) ($53-$58) company to host live conference call and webcast the company’s management team plans to host a live conference call and webcast at 4:30 p.m. eastern time today to discuss the financial results as well as management’s outlook for the business and other matters. the conference call may be accessed in the united states by dialing +1.877.692.8955 and using access code 825879. the conference call may be accessed outside of the united states by dialing +1.234.720.6979 and using the same access code. the conference call will be simultaneously webcast on the company’s investor relations website, which can be accessed at http://ir.evolvtechnology.com. a replay of the conference call will be available for a period of 30 days by dialing +1.866.207.1041 or +1.402.970.0847 and using access code 9795540 or by accessing the webcast replay on the company’s investor relations website at http://ir.evolvtechnology.com. about evolv technology evolv technology (nasdaq: evlv) is transforming human security to make a safer, faster, and better experience for the world’s most iconic venues and companies as well as schools, hospitals, and public spaces, using industry leading artificial intelligence (ai)-powered weapons detection and analytics. its mission is to transform security to create a safer world to work, learn, and play. evolv has digitally transformed the gateways in places where people gather by enabling seamless integration combined with powerful analytics and insights. evolv’s advanced systems have scanned more than 600 million people, second only to the department of homeland security’s transportation security administration (tsa) in the united states. evolv has been awarded the u.s. department of homeland security (dhs) safety act designation as a qualified anti-terrorism technology (qatt) as well as the security industry association (sia) new products and solutions (nps) award in the law enforcement/public safety/guarding systems category. evolv technology®, evolv express®, evolv insights®, and evolv cortex ai® are registered trademarks of evolv technologies, inc. in the united states and other jurisdictions. for more information, visit https://evolvtechnology.com. 1 we define annual recurring revenue, or arr, as subscription revenue and the recurring service revenue related to purchase subscriptions for the final month of the quarter normalized to a one-year period. our calculation of arr is not adjusted for the impact of any known or projected future events (such as customer cancellations, upgrades or downgrades, or price increases or decreases) that may cause any such contract not to be renewed on its existing terms. in addition, the amount of actual revenue that we recognize over any 12-month period is likely to differ from arr at the beginning of that period, sometimes significantly. this may occur due to new bookings, cancellations, upgrades, downgrades or other changes in pending renewals, as well as the effects of professional services revenue and acquisitions or divestitures. as a result, arr should be viewed independently of, and not as a substitute for or forecast of, revenue and deferred revenue. our calculation of arr may differ from similarly titled metrics presented by other companies. 2 we define remaining performance obligation, or rpo, as estimated revenues expected to be recognized in the future related to performance obligations that are unsatisfied or partially satisfied as of the end of the quarter. 3 non-gaap financial measures in this press release, the company’s adjusted operating expenses, adjusted gross profit (loss), adjusted gross margin, adjusted operating income (loss), adjusted ebitda, adjusted earnings (loss), and adjusted earnings per share-diluted are not presented in accordance with generally accepted accounting principles (gaap) and are not intended to be used in lieu of gaap presentations of results of operations. adjusted gross profit and adjusted gross margin exclude one-time items including stock-based compensation expense which management believes provides a more meaningful representation of contribution margin. adjusted operating expenses is defined as operating expenses less one-time items including stock-based compensation expense, restructuring expenses, and loss on impairment of lease equipment which management believes provides a more meaningful representation of on-going operating expense levels. adjusted ebitda is defined as net income (loss) plus depreciation and amortization, share-based compensation, and certain other one-time expenses. adjusted earnings (loss) is defined as net income (loss) plus stock-based compensation, change in fair value of derivative liability, change in fair value of contingent earn-out liability, change in fair value of contingently issuable common stock liability, change in fair value of public warrant liability, change in fair value of common stock warrant liability, restructuring expenses, loss on impairment of lease equipment, and certain other one-time expenses. management presents non-gaap financial measures because it considers them to be important supplemental measures of performance. management uses non-gaap financial measures for planning purposes, including analysis of the company's performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. management also believes non-gaap financial measures provide additional insight for analysts and investors in evaluating the company's financial and operational performance. however, non-gaap financial measures have limitations as an analytical tool and are not intended to be an alternative to financial measures prepared in accordance with gaap. we intend to provide non-gaap financial measures as part of our future earnings discussions and, therefore, the inclusion of non-gaap financial measures will provide consistency in our financial reporting. investors are encouraged to review the reconciliation of these non-gaap measures to their most directly comparable gaap financial measures included in this press release. the company is unable to provide a reconciliation of adjusted gross margin to gaap gross margin and non-gaap adjusted ebitda to net income (loss), each measure's most directly comparable gaap financial measure, on a forward-looking basis without unreasonable effort, because items that impact these gaap financial measures are not within the company’s control and/or cannot be reasonably predicted. these items may include, but are not limited to, predicting forward-looking share-based compensation, changes in the fair value of derivative liabilities, changes in the fair value of contingent earn out liabilities, changes in the fair value of contingently issuable common stock liabilities and changes in fair value of public warrant liabilities. such information may have a significant, and potentially unpredictable, impact on the company’s future financial results. 4 recurring revenue includes the recurring portion of revenue associated with pure subscription contracts and hardware purchase subscription contracts. non-recurring revenue includes revenue that is one-time in nature, such as product revenue, shipping revenue, and revenue from installation, training, and professional services. forward-looking statements this press release contains forward-looking statements within the meaning of the private securities litigation reform act of 1995. we intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in section 27a of the securities act of 1933, as amended and section 21e of the securities exchange act of 1934, as amended. all statements contained in this press release other than statements of historical facts, including without limitation statements regarding our ability to meet our 2023 annual guidance for revenue, arr, adjusted gross margin, adjusted ebitda, as well as our estimates for cash and cash equivalents for fiscal year 2023. words such as “believe” “may,” “will,” “expect,” “should,” “could,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “project,” “plan,” “target,” “is/are likely to” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, though not all forward-looking statements use these words or expressions. these statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: expectations regarding the company’s strategies and future financial performance, including its future business plans or objectives, prospective performance and opportunities and competitors, revenues, products and services, pricing, operating expenses, market trends, liquidity, cash flows and uses of cash, capital expenditures; the company’s history of losses and lack of profitability; the company’s reliance on third party contract manufacturing and a global supply chain; the rate of innovation required to maintain competitiveness in the markets in which the company competes; the loss of designation of the evolv express system as a qualified anti-terrorism technology under the homeland security safety act; the ability for the company to obtain, maintain, protect and enforce the company’s intellectual property rights and use of “open source” software; the concentration of the company’s revenues on a single solution; the company’s ability to timely design, produce and launch its solutions, the company’s ability to invest in growth initiatives and pursue acquisition opportunities; the limited liquidity and trading of the company’s securities; risks related to existing and changing tax laws; geopolitical risk and changes in applicable laws or regulations; the possibility that the company may be adversely affected by other economic, business, and/or competitive factors; operational risk; the impact of fluctuating general economic and market conditions; the need for additional capital to support business growth, which might not be available on acceptable terms, if at all; risks related to our indebtedness; and litigation and regulatory enforcement risks, including the diversion of management time and attention and the additional costs and demands on resources, the company’s ability to identify and implement digital advances in its technology. these and other important factors discussed under the caption “risk factors” in our annual report on form 10-k for the year ended december 31, 2022 filed with the securities and exchange commission ("sec") on march 24, 2023 as may be updated from time to time in other filings we make with the sec, could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. these statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this press release. you should not put undue reliance on any forward-looking statements. although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. evolv technology condensed consolidated statements of operations and comprehensive loss (in thousands, except share and per share data) (unaudited) three months ended march 31, 2023 2022 revenue: product revenue $ 8,754 $ 5,194 subscription revenue 6,466 3,004 service revenue 3,361 512 total revenue 18,581 8,710 cost of revenue: cost of product revenue 10,578 5,206 cost of subscription revenue 2,351 1,542 cost of service revenue 887 1,065 total cost of revenue 13,816 7,813 gross profit 4,765 897 operating expenses: research and development 5,389 4,175 sales and marketing 12,804 9,672 general and administrative 8,926 10,817 loss from impairment of property and equipment 137 96 total operating expenses 27,256 24,760 loss from operations (22,491 ) (23,863 ) other income (expense), net: interest expense (654 ) (142 ) interest income 953 68 other expense, net 19 — loss on extinguishment of debt (626 ) — change in fair value of contingent earn-out liability (3,318 ) 3,078 change in fair value of contingently issuable common stock liability (742 ) 1,472 change in fair value of public warrant liability (1,750 ) 5,586 total other income (expense), net (6,118 ) 10,062 net loss $ (28,609 ) $ (13,801 ) weighted average common shares outstanding – basic and diluted 146,433,378 142,878,406 net loss per share - basic and diluted $ (0.20 ) $ (0.10 ) net loss $ (28,609 ) $ (13,801 ) other comprehensive income (loss) cumulative translation adjustment (16 ) — total other comprehensive loss (16 ) — total comprehensive loss $ (28,625 ) $ (13,801 ) evolv technology condensed consolidated balance sheets (in thousands, except share and per share data) (unaudited) march 31, 2023 december 31, 2022 assets current assets: cash and cash equivalents $ 180,996 $ 229,783 restricted cash 1,000 — accounts receivable, net 23,156 31,920 inventory 8,816 10,257 current portion of contract assets 3,265 2,852 current portion of commission asset 3,293 3,384 prepaid expenses and other current assets 14,413 14,388 total current assets 234,939 292,584 restricted cash, noncurrent 275 275 contract assets, noncurrent 715 1,386 commission asset, noncurrent 6,390 5,655 property and equipment, net 59,789 44,707 operating lease right-of-use assets 1,459 1,673 other assets 1,965 1,835 total assets $ 305,532 $ 348,115 liabilities and stockholders’ equity current liabilities: accounts payable $ 19,192 $ 18,194 accrued expenses and other current liabilities 6,477 11,545 current portion of deferred revenue 23,977 18,273 current portion of long-term debt — 10,000 current portion of operating lease liabilities 1,122 1,114 total current liabilities 50,768 59,126 deferred revenue, noncurrent 20,748 17,695 long-term debt, noncurrent — 19,683 operating lease liabilities, noncurrent 630 892 contingent earn-out liability 17,536 14,218 contingently issuable common stock liability 4,134 3,392 public warrant liability 7,874 6,124 total liabilities 101,690 121,130 stockholders’ equity: preferred stock, $0.0001 par value; 100,000,000 authorized at march 31, 2023 and december 31, 2022; no shares issued and outstanding at march 31, 2023 and december 31, 2022 — — common stock, $0.0001 par value; 1,100,000,000 shares authorized at march 31, 2023 and december 31, 2022; 147,977,034 and 145,204,974 shares issued and outstanding at march 31, 2023 and december 31, 2022, respectively 15 15 additional paid-in capital 424,672 419,190 accumulated other comprehensive loss (26 ) (10 ) accumulated deficit (220,819 ) (192,210 ) stockholders’ equity 203,842 226,985 total liabilities and stockholders’ equity $ 305,532 $ 348,115 evolv technology condensed consolidated statements of cash flows (in thousands) (unaudited) three months ended march 31, 2023 2022 cash flows from operating activities: net loss $ (28,609 ) $ (13,801 ) adjustments to reconcile net loss to net cash used in operating activities: depreciation and amortization 1,815 1,086 write-off of inventory and change in inventory reserve 214 324 adjustment to property and equipment for sales type leases — (625 ) loss from impairment of property and equipment 137 96 stock-based compensation 5,043 3,927 non-cash interest expense 22 5 non-cash lease expense 214 197 change in allowance for expected credit losses 124 — loss on extinguishment of debt 626 — change in fair value of earn-out liability 3,318 (3,078 ) change in fair value of contingently issuable common stock 742 (1,472 ) change in fair value of public warrant liability 1,750 (5,586 ) changes in operating assets and liabilities accounts receivable 8,640 (2,112 ) inventory 1,418 (1,310 ) commission assets (644 ) (351 ) contract assets 258 108 other assets (130 ) 141 prepaid expenses and other current assets (25 ) (5,571 ) accounts payable (2,213 ) (855 ) deferred revenue 8,757 2,577 accrued expenses and other current liabilities (4,637 ) (2,433 ) operating lease liability (254 ) (697 ) net cash used in operating activities (3,434 ) (29,430 ) cash flows from investing activities: development of internal-use software (733 ) (728 ) purchases of property and equipment (13,365 ) (6,689 ) proceeds from sale of property and equipment 60 — net cash used in investing activities (14,038 ) (7,417 ) cash flows from financing activities: proceeds from exercise of stock options 33 227 proceeds from long-term debt 1,876 — repayment of principal on long-term debt (31,876 ) — payment of debt issuance costs and prepayment penalty (332 ) — net cash provided by (used in) financing activities (30,299 ) 227 effect of exchange rate changes on cash and cash equivalents (16 ) — net increase (decrease) in cash, cash equivalents and restricted cash (47,787 ) (36,620 ) cash, cash equivalents and restricted cash cash, cash equivalents and restricted cash at beginning of period 230,058 308,167 cash, cash equivalents and restricted cash at end of period $ 182,271 $ 271,547 evolv technology revision of prior period financial statements (in thousands) (unaudited) in preparing the condensed consolidated financial statements as of and for the three and six months ended june 30, 2022, the company identified various errors in its previously issued financial statements. the identified errors impacted the company's previously issued quarterly financial statements for the three months ended march 31, 2022, and accordingly the company has made adjustments to the prior period amounts presented herein. additionally, the company has made adjustments to correct for other previously identified immaterial errors. the company evaluated the errors and determined that the related impacts were not material to any previously issued annual or interim financial statements. the impact of the revisions to the quarterly period ending march 31, 2022 is presented as follows (in thousands): three months ended march 31, 2022 as previously reported adjustment as revised revenue: product revenue $ 5,194 $ — $ 5,194 subscription revenue 3,020 (16 ) 3,004 service revenue 501 11 512 total revenue 8,715 (5 ) 8,710 cost of revenue: cost of product revenue 5,576 (370 ) 5,206 cost of subscription revenue 1,065 477 1,542 cost of service revenue 448 617 1,065 total cost of revenue 7,089 724 7,813 gross profit 1,626 (729 ) 897 operating expenses: research and development 4,286 (111 ) 4,175 sales and marketing expense 12,053 (2,381 ) 9,672 general and administrative 11,093 (276 ) 10,817 loss from impairment of property and equipment 96 — 96 total operating expenses 27,528 (2,768 ) 24,760 loss from operations (25,902 ) 2,039 (23,863 ) other income (expense), net: interest expense (142 ) — (142 ) interest income 209 (141 ) 68 change in fair value of contingent earn-out liability 4,226 (1,148 ) 3,078 change in fair value of contingently issuable common stock liability 1,472 — 1,472 change in fair value of public warrant liability 5,586 — 5,586 total other income (expense), net 11,351 (1,289 ) 10,062 net loss $ (14,551 ) $ 750 $ (13,801 ) weighted average common shares outstanding - basic and diluted 142,878,406 — 142,878,406 net loss per share - basic and diluted $ (0.10 ) $ — $ (0.10 ) three months ended march 31, 2022 as previously reported adjustment as revised cash flows from operating activities: net loss $ (14,551 ) $ 750 $ (13,801 ) adjustments to reconcile net loss to net cash used in operating activities: depreciation and amortization 948 138 1,086 write-off of inventory 324 — 324 adjustment to property and equipment for sales type leases (321 ) (304 ) (625 ) loss from impairment of property and equipment 96 — 96 stock-based compensation 5,190 (1,263 ) 3,927 non-cash interest expense 5 — 5 non-cash lease expense 197 — 197 change in fair value of earn-out liability (4,226 ) 1,148 (3,078 ) change in fair value of contingently issuable common stock (1,472 ) — (1,472 ) change in fair value of public warrant liability (5,586 ) — (5,586 ) changes in operating assets and liabilities accounts receivable (2,112 ) — (2,112 ) inventory (6,985 ) 5,675 (1,310 ) commission assets (351 ) — (351 ) contract assets 108 — 108 other assets — 141 141 prepaid expenses and other current assets (5,280 ) (291 ) (5,571 ) accounts payable (1,867 ) 1,012 (855 ) deferred revenue 2,778 (201 ) 2,577 deferred rent (468 ) 468 — accrued expenses and other current liabilities (2,065 ) (368 ) (2,433 ) operating lease liability (229 ) (468 ) (697 ) net cash used in operating activities (35,867 ) 6,437 (29,430 ) cash flows from investing activities: development of internal-use software (646 ) (82 ) (728 ) purchases of property and equipment (323 ) (6,366 ) (6,689 ) net cash used in investing activities (969 ) (6,448 ) (7,417 ) cash flows from financing activities: proceeds from exercise of stock options 216 11 227 net cash provided by financing activities 216 11 227 net increase (decrease) in cash, cash equivalents and restricted cash (36,620 ) — (36,620 ) cash, cash equivalents and restricted cash cash, cash equivalents and restricted cash at beginning of period 308,167 — 308,167 cash, cash equivalents and restricted cash at end of period $ 271,547 $ — $ 271,547 supplemental disclosure of non-cash activities transfer of inventory to property and equipment $ 4,620 $ (4,620 ) $ — capital expenditures incurred but not yet paid 1,693 698 2,391 evolv technology summary of key operating statistics (unaudited) three months ended or as of, ($ in thousands) march 31, 2022 june 30, 2022 september 30, 2022 december 31, 2022 march 31, 2023 new customers 44 53 92 106 61 annual recurring revenue $ 16,641 $ 20,865 $ 28,741 $ 34,120 $ 42,021 recurring revenue $ 3,159 $ 4,604 $ 6,221 $ 7,388 $ 9,075 remaining performance obligation $ 63,750 $ 80,978 $ 109,407 $ 144,561 $ 161,813 net additions 207 237 545 575 520 ending deployed units 910 1,147 1,692 2,267 2,787 evolv technology reconciliation of gaap operating expenses to adjusted operating expenses (in thousands) (unaudited) three months ended, march 31, 2022 june 30, 2022 september 30, 2022 december 31, 2022 march 31, 2023 operating expenses, gaap $ 24,760 $ 25,835 $ 26,827 $ 26,868 $ 27,256 stock-based compensation (3,819 ) (4,781 ) (6,298 ) (6,771 ) (4,898 ) restructuring expenses (324 ) 13 — — — loss on impairment of lease equipment (96 ) (316 ) (626 ) (123 ) (137 ) other one-time expenses (1,107 ) (2,298 ) (69 ) (41 ) (53 ) adjusted operating expenses $ 19,414 $ 18,453 $ 19,834 $ 19,933 $ 22,168 evolv technology reconciliation of gaap gross profit to adjusted gross profit, gaap gross margin to adjusted gross margin and gaap operating income (loss) to adjusted operating income (loss) (in thousands) (unaudited) three months ended march 31, 2023 2022 revenue $ 18,581 $ 8,710 cost of revenue 13,816 7,813 gross profit, gaap 4,765 897 stock-based compensation 145 108 amortization of capitalized stock-based compensation 10 3 adjusted gross profit $ 4,920 $ 1,008 gross margin % 25.6 % 10.3 % adjusted gross margin % 26.5 % 11.6 % three months ended march 31, 2023 2022 operating income (loss), gaap $ (22,491 ) $ (23,863 ) stock-based compensation 5,043 3,927 amortization of capitalized stock-based compensation 10 3 restructuring expenses — 324 loss on impairment of lease equipment 137 96 other one-time expenses 53 1,107 adjusted operating income (loss) $ (17,248 ) $ (18,406 ) evolv technology reconciliation of gaap net income (loss) to adjusted ebitda (in thousands) (unaudited) three months ended march 31, 2023 2022 net loss $ (28,609 ) $ (13,801 ) depreciation & amortization 1,815 1,086 stock-based compensation 5,043 3,927 interest expense (income) (299 ) 74 loss on disposal of property & equipment — — loss on extinguishment of debt 626 — change in fair value of contingent earn-out liability 3,318 (3,078 ) change in fair value of contingently issuable common stock liability 742 (1,472 ) change in fair value of public warrant liability 1,750 (5,586 ) restructuring expenses — 324 loss on impairment of lease equipment 137 96 other one-time expenses 53 1,107 adjusted ebitda $ (15,424 ) $ (17,323 ) evolv technology reconciliation of gaap net income (loss) to adjusted earnings (loss) (in thousands, except share and per share data) (unaudited) three months ended march 31, 2023 2022 net loss $ (28,609 ) $ (13,801 ) stock-based compensation 5,043 3,927 amortization of capitalized stock-based compensation 10 3 loss on extinguishment of debt 626 — change in fair value of contingent earn-out liability 3,318 (3,078 ) change in fair value of contingently issuable common stock liability 742 (1,472 ) change in fair value of public warrant liability 1,750 (5,586 ) restructuring expenses — 324 loss on impairment of lease equipment 137 96 other one-time expenses 53 1,107 adjusted earnings (loss) $ (16,930 ) $ (18,480 ) weighted average common shares outstanding – diluted 146,433,378 142,878,406 adjusted earnings (loss) per share – diluted $ (0.12 ) $ (0.13 )
