Evolv Technology Stock – A Play on Smart City Security
One man’s terrorist is another man’s freedom fighter. It’s something that the famous American philosopher George Carlin commented on when we quipped, “if crime fighters fight crime, and firefighters fight fires, what do freedom fighters fight?” Sometimes, it’s best to just make sure nobody brings any weapons to the party and we can argue semantics another time. Airports epitomize the need for security screenings, but they can be found everywhere – from courthouses to football games.
Since we’re not allowed to use profiling, everyone needs to be given an equal shakedown in security screening. Throw in the new healthcare requirement for screening temperatures, and getting crowds of people into any venue starts to require lots of manpower and equipment. A company called Evolv Technology thinks they have the answer – a modern method of security screening that uses artificial intelligence (AI) to speed things up. And they’ve decided to back their assets up into a special purpose acquisition company (SPAC) called NewHold Investment Corp. (NHIC).
About Evolv Technology Stock
We first came across Evolv Technology a few years back in our piece on 6 AI Startups Doing Physical Security, then again in our piece on 11 Public Safety Solutions for Smart Cities Using IoT. Founded in 2013, the Massachusetts startup has taken in just over $98 million in disclosed funding to develop a new touchless security screening platform that promises to transform smart city security needs at various venues. One of their investors, deep tech venture capital firm Data Collective, penned a piece on the coming SPAC which noted that Evolv now has “100s of customers” including Lincoln Center, Manchester City, the Wynn hotel, and Six Flags. Over 50 million people have walked through any one of the +400 Evolv scanners that have been deployed with some remarkable results.
Within three weeks of installing Evolv’s technology, a major U.S. landmark detected – and stopped – an average of 2.3 knives and 1.1 guns at the door per day.Data Collective
The secret sauce behind the Evolv Technology people scanner is a set of 50 sensors that feed artificial intelligence algorithms that can distinguish between a gun and an iPhone at the speed of walking. A single two-lane system can scan more than 3,000 people per hour, about 10X as fast as metal detectors can operate.
That’s almost equivalent to scanning one person a second. At that speed, there’s a dramatic reduction in costs by as much as 70%. Legacy solutions cost about 38 cents a scan, while the Evolv platform costs about 11 cents a scan. One professional sports team expects to save $600,000 a year compared to walk-through metal detectors and bag checks, not to mention the improved customer experience. Evolv estimates that their solution can address a total addressable market of around $20 billion.
Evolv’s Basic Financials
Unlike most SPACs, Evolv Technology has actual revenues that are expected to be propelled by their global partnerships with Johnson Controls, Stanley Black & Decker, and Motorola which appears to be white labeling their product. When it comes to revenues, we’re given two different metrics to look at – bookings and revenues – which can be seen below:
An obvious question is why revenues slipped from $5.8 million in 2019 to $4.3 million in 2020. Then, revenues are expected to suddenly more than quadruple this year to just over $20 million. Why is it that every SPAC is just on the cusp of massive revenue growth? In Evolv’s case, we’re quite sure it has something to do with “bookings,” which appear pretty favorable, but could take a number of forms.
Security as a Service
The company has “100s of customers” so we can assume that number is at least 200. One missing piece of information that’s typically found in an S-1 filing is whether or not one or more customers account for more than 10% of revenues. Ideally, they’re fairly evenly distributed across Evolv’s customer base.
Each customer can purchase the hardware along with a software subscription, or choose the “security-as-a-service” option which can be seen below:
That same slide talks about “four-year customer contracts with no termination; 12 months paid annually in advance.” That sounds great, but doesn’t bring us any closer to understanding how bookings translate into revenues.
One other thing to note about Evolv is their desire to grow through acquisition. This is similar to Desktop Metal’s ambitions of consolidating the very disparate 3D printing metals space. In their investor deck, Evolv talks about how they’ve identified 80 acquisition candidates, and they now have $437 million in their war chest to make that happen. The company also plans to expand globally, and they’ve already made progress in that respect with installations at the Four Seasons in Cairo, the premier football leagues in the U.K., and nuclear power plants in Japan.
To Buy or Not to Buy
We really need some more clarification about what constitutes a booking and when revenues are counted. This sort of information would nearly always be found in any company’s S-1 filing. This is a SPAC though, so all you need is a team and a dream and investors will be lining up.
Regarding their decision to go public via SPAC, Evolv Technology CEO Peter George told Yahoo Finance Live that “there’s never been a better time to come to market.” Indeed. That’s because the market appears willing to buy just about any growth story at any price. That’s great for Evolv Technology, their investors, the hedge funds who traded the deal, and the SPAC operators who made millions in a very short period of time.
For retail investors, there’s no sense of urgency to buy into an overheated market. We’re not keen to establish new positions right now because we believe the market is overheated, especially when it comes to volatile SPACs. Though we like what we’ve seen so far, we’ll wait until some proper regulatory filings are available before making a final decision on whether or not to hold this interesting smart city security stock.
If you decide to pull the trigger on some Evolv Technology shares, you’ll pay a (looks over at stock ticker…) +4% premium at the moment – so $10.40 a share. We consider this to be an acceptable premium for retail investors to pay over the $10 a share that institutional investors paid.
There aren’t too many attractive pure-play stocks for investing in the smart cities of tomorrow, so Evolv Technology’s stock doesn’t have many substitutes. We’re liking the bookings, but have questions about how they recognize revenues. Once the company has made some proper regulatory filings, we’ll take another look. After the proposed transaction closes in Q2 2021, the combined company will trade under the ticker symbol EVLV.
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