EVLV - EVOLV TECHNOLOGIES: EXPANDING THE WEAPON SECURITY SCREENING INDUSTRY
Evolv Technologies (NASDAQ: EVLV), a leader in AI-based weapons detection security screening, announced its partnership with Atlanta Public Schools. The school district began using Evolv’s state-of-the-art Evolv Express security screening solution in its 15 middle and 21 high schools at the end of 2022. The school system has an active enrollment of over 50,000 students, attending nearly 100 school sites.
Ron Applin, chief of police for Atlanta Public Schools, commented,
“We wanted the best option to keep our environment safe, and that was Evolv. People are going to start seeing that they can’t get items past the security check now, and that’s going to make a real difference.” Atlanta Public Schools will be using 32 Express systems in all, with plans for four of the systems to be used at two football stadiums.”
Evolv Technologies (NASDAQ: EVLV)
Market Cap: $426.64M; Current Share Price: $2.95
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The Company
Evolv Technologies is a global leader in Artificial Intelligence (AI) -based weapons detection for security screening, with a mission to make the world a safer and more enjoyable place to work, learn, and play. The Company owns over 100 core and licensed patents and its touchless security screening systems have screened more than 425 million visitors till date.
Industry and Market Opportunity
There are about 444 million privately-owned guns in circulation in the U.S. In 2021 there were 693 mass shootings – an all-time record in a year when most people were not free to gather. Thus, current macro trends in firearms ownership, mass shootings, and pandemic awareness suggest that the need for effective security screening processes is at an all-time high and will continue to grow for the foreseeable future.
Security technology providers have historically focused on serving a regulated market consisting of airports and prisons and developed technology that meets regulatory requirements, but without any regard to visitor experience. This limited functionality has led many unregulated facilities to avoid security screening altogether rather than run the risk of creating a prison-like environment for their customers and employees. Rather than forcing venues to choose between better security and an enjoyable visitor experience, Evolv is offering a technology that provides both.
Primary market opportunity for weapon screening is present in segments such as professional sports venues, industrial warehouses, distribution facilities, large workplaces, arts & entertainment venues, government offices, hospitality facilities, hospitals & health care facilities, houses of worship and educational institutions. These facilities together comprise about 400,000 sites and a million individual thresholds. It is estimated that this market represents over $20 billion in potential weapon screening system sales annually.
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Other than the above, there are many additional opportunities for Evolv to create new value-added applications that expand their market opportunity beyond security screening. Security screening and many other operational processes in venues and facilities are currently largely manual and analog. The Company intends to digitally transform many of these processes by adding new software applications and digital sensors to their platform.
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Potential future applications that could build on the Company’s presence in the threshold area include more advanced visitor and security screening analytics and credential verification for ticketed visitors or overall employee or visitor identification. There are also opportunities for new sensors and applications to help venues identify potential threats at the perimeter and guide visitors in the parking lots and other perimeter approach areas of facilities. As visitors pass the threshold to the interior of the facility, it is anticipated that opportunities to remove friction from the visitor, maximize retail revenue, and provide insights may help reduce costs over time. The Company estimates that the market for these incremental digital opportunities increases their total market opportunity to $100 billion annually by 2025.
Product Offerings
Unlike traditional walk-through metal detectors, Evolv’s touchless security screening solutions use AI software, software as a service (SaaS) cloud services and advanced sensors to reliably detect dangerous weapons while significantly reducing nuisance alarms from harmless personal items. This in turn reduces physical footprint, reclaiming space for visitor experiences and revenue opportunities.
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Evolv’s products significantly reduce the number of false positive alarms, allowing security staff to focus their attention on high probability threats. The Company’s innovative technology not only enhances security but makes screening about 70% cheaper than traditional alternatives. As mentioned earlier, the products deliver a largely touchless screening experience — a capability that has become an increasingly important consumer demand through the COVID-19 pandemic. Evolv’s products also provide unique analytic insights about security screening performance and visitor flows, and are offered to customers primarily under a multi-year subscription pricing model.
Evolv Express screens up to 4,000 people per hour, which is 10 times faster than metal detectors. Thus, it provides safer, more accurate threat detection at unprecedented volume and speed, allowing individuals to pass through security in a welcoming manner without always having to stop, be searched, or remove their personal belongings.
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Growth Strategy and its Effectiveness
As shown below, Evolv follows a successful three-pronged strategy to achieve growth in their industry.
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Their strategy is successfully executed by a highly capable management team that blend a range of skills and backgrounds from technology, cybersecurity, materials science, artificial intelligence, military, law enforcement and real estate. Through their guidance, Evolv has succeeded in signing global strategic partnership agreements with Motorola Solutions, Stanley Security, and Johnson Controls. Both Motorola Solutions and Stanley Security are investors in the Company.
Further, Evolv has developed a global distribution network consisting of over thirty value-added resellers covering over thirty countries around the world, who provide marketing, sales, systems integration, and local support services for customers across an array of vertical markets and regions. This has resulted in a rapidly growing customer base for Evolv, full of iconic brands as shown below:
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The effectiveness of the Company’s products and strategies is further reflected in its exponential subscription growth, as well as financial results over the last couple of years.
In Q3 FY22, the Company achieved record number of installations (1,692), with new deployed units of 545, which represents more than 200% YoY growth.
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At the same time, Total Revenues (TR) stood at $16.5 million for Q3 FY22, an increase of 96% compared to $8.4 million for Q3 FY21. Total Contract Value (TCV) of orders booked for Q3 FY22 was $45.4 million, an increase of 167% compared to $17.0 million in the Q3 FY21. Annual Recurring Revenue (ARR) was $28.7 million for Q3 FY22, an increase of 189% compared to $9.9 million at the end of Q3 FY21.
At the end of FY21, the Company had issued business outlook where it indicated FY22 TR in the range of $29 – $31 million, and ARR in the range of $27 – $28 million. However, owing to spectacular performance, at the end of Q3 FY22, the Company raised outlook for the full year to $46-$48 million TR and $31-$32 million ARR.
For FY21 also, the company had experienced exponential growth reflected in TR of $23.7 million this denotes an increase of 395% compared to $4.8 million in FY20. At the same time, TCV of orders booked in FY21 was $53.8 million, an increase of 148% compared to $21.7 million in FY20.
So far, the Company has not achieved any profitability – it reported net losses of $10.9 million and $27.4 million for FY21 and FY20, respectively. At the end of FY21, they had accumulated deficit of $104.7 million. However, this is because Evolv is an early stage company, and it is quite likely that the Company will achieve profitability fairly quickly in the near future.
It seems that the Company has sufficient funds to capitalize on upcoming opportunities and the growing demand for its products. At the end of FY21, the Company had had cash and cash equivalents of $307.5 million compared to $4.7 million at the end of FY20.
Moreover, Evolv has proved that it can raise capital easily, should it feel the need to do so. As recently as December 2022, the Company announced that it has closed a $75 million non-dilutive debt financing facility with Silicon Valley Bank, the bank of the world’s most innovative companies and investors, with an aim to further strengthen their already strong balance sheet and support their rapidly growing subscription business.
The Company is recognized as a force to contend with in the field of weapons detection security screening as is obvious from the many accolades it has received from the industry. Most recently, in March 2022, it received the Security Industry Association (SIA) New Products and Solutions (NPS) Award in the Law Enforcement/Public Safety/Guarding Systems category for Evolv Express. This award further validates the Company’s expertise and seems to indicate that it is poised to scale greater heights in the near future.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1805385/000155837022004491/nhic-20211231x10k.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1805385/000162828022029319/nhic-20220930.htm