Welcome to the Needham Growth Conference. We're excited to have Evolv Technology today, and we have CEO Peter George and CFO Mark Donohue presenting today. Thanks for coming.
Thanks for having us.
Thanks for having us, John. So good morning, everybody. Really appreciate you getting up early to come join this small group, but a good group. How many people here know Evolv Technology? Okay, so about half, which is great. So we'll take you through our our genesis, but also the business, which is really why we're here. So thank you very much for that. So let me start a little bit with maybe one of the most important things for our company is the mission. We have a really important mission as a company, and that's to make the world a safer place for people to live, to work, to learn, and play. I spent about 25 years of my career in the cyberspace, and actually, Mark spent a lot of time as well.
We thought we were doing really important work over there, and we were, until we came here. We came here, and putting our systems in places like schools and hospitals to keep kids and people safe, it's really, really a rewarding and amazing thing. So it's a really important reason why people come to Evolv and why we love doing what we do every single day, and we think we have a really important purpose, given what's going on in the world today. So for those of you who didn't know much about us before you came in, we appreciate you coming. We're the leaders in AI weapons detection. In fact, we invented the category about three years ago. We went public 2.5 years ago on the Nasdaq, and we created this category of AI weapons detection.
I'm gonna talk in a few minutes about what's really different about that and everything else in the marketplace, and why, as a category maker and creator, we're in a really unique position as a company. Mark's gonna talk later in the presentation about the other thing that's innovative about our business, and that's not only is our technology groundbreaking, but we're the only company using a SaaS model to deliver this capability to the market. Really, really important ethos for the company. Of course, the other big thing, yeah, there's a huge TAM, right? If you think about places where people gather, stadiums, schools, lots of people in a short amount of time getting into a place, knowing when they go in the inside, that we've created a safer place for them to keep weapons out.
It's really important, given the fact there's 430 million guns in America and escalating gun violence every single year. So that's the world that we're in. We have about 650 customers, which may or may not sound like a lot, but these are some of the most iconic venues in the world. Think about the most iconic theme parks and stadiums and schools and hospitals, performing arts venues, even houses of worship are places that use our technology. So we're really proud of that and honored that we have some of those iconic venues. We have over 4,000 systems deployed around the world. 98% of those are in North America. This is where we have a gun violence epidemic, so we've stayed focused in North America. We do have customers in other parts of the world.
We screen over 2 million visitors every single day. So I'll say that again, because it's more than the TSA on a busy weekend, right? Between our systems and the number of people going out, every morning, we screen 250,000 kids going into school to keep them safe, 400,000 visitors in hospitals. So we have systems in places and don't know where everyone's from, but if you're from New York, we have systems all over New York and probably in the cities or suburbs that you're from, too. And when you see some pictures of it, I think you'll see that. The other thing that's really important is we've screened 1 billion people to date. You know, that's 3 x the American population.
And all of those scans are scans that we're able to capture and use because we use machine learning models, and I'll talk a little bit more about our technology to make the system smarter over time. So really important, we have a corpus of data which is really, really valuable for the company. On any given Sunday, even the ones coming up, where we have 44 professional sporting teams using our technology, a lot of teams in the NFL using us, we'll screen about 1 million visitors on a Sunday. And of course, I'm guessing all of us have stood in the line there on your left, right? And by the way, this is... So we're a Boston-based company, everybody. And when, after the Boston Marathon bombing, professional sports did what aviation and... Come on, come on, have a seat.
What aviation did, and they mandated and regulated that professional sporting teams, NFL, MLB, all the professional teams, put in technology to keep weapons out from going into places. It's required, right? So when you go to a basketball game or a football game, and that's what happens on the left. That's actually a picture of Gillette Stadium after the Boston Marathon bombing, when the ruling was, "Go get the latest technology to keep weapons out," and all they could grab was metal detectors, invented 86 years ago. Really good at finding metal, not so good at finding weapons. It creates the thing on the left that we hate so much, right? It's the worst part of going to a game, is standing in that stupid line.
So we completely flipped the model, and we took very advanced sensors and very advanced software and ML and AI models, and we flipped the model and said, "Hey, instead of looking for metal, let's look for weapons. Let's create a weapons detector that can find the weapon on people when they're walking at the pace of life." We all carry metal. We all have our phones on today and our keys and our Yeti cups. So instead of proving you don't have a gun, by taking everything out, divesting to come in, we use technology to find the needle in the haystack, 'cause most people aren't carrying a weapon when they come to a Taylor Swift concert. So that's what we do, right? And it's game-changing because we all want to gather again post-COVID, but we want to do it safely, right?
We want to do it safe from health threats like COVID that weaponize people, but also with more guns in America and more anxiety in America. Let's do it and be safe. So I'm just going to play a quick video, and you'll see people walking through. This is one of the gates into a baseball stadium. We have a lot of MLB teams using us. And you can see people walking in. They're carrying their backpacks. They have knee braces. All of them are carrying their iPhones. They have metal on them, and unless they have a weapon on them, they're just, they can walk in right at the pace of life. You can see they're not divesting of anything. They're just walking right in and not breaking stride.
That's game-changing for stadiums and schools where kids come, you know. Our kids all go to school, nobody comes to school 1 hour early, right? We come 10 minutes before school, before the bell, right? So lots of people in a short amount of time, getting in is really important, and that's something that we do now for 650 customers and 4,000 systems around the world. So, and we have some. Like I said, with Citi Field, the New York Mets is a big customer of ours. We have systems everywhere. You know, I mentioned some of the secular tailwinds that are driving our business, and gun violence is one of them here in North America.
If there are two epidemics, and we probably have more, but if there are two epidemics that are unique to our country, one is an anxiety epidemic. Our kids have lots of anxiety, and there's lots of reasons, I think, for that. And then the second thing is, we have a gun violence epidemic here, folks, right? We've, we've had 656 mass shootings last year, and you can see the number going to the right. Too many guns, too much mental illness. Whatever it is, it's too much. And people want to gather, and they want to be safe. And this is the thing, that we want to reverse this trend, right? We want to reverse this trend. Really important.
So some of the big challenges here is when people want to gather, given there's lots of guns and given there's a lot of anxiety, how we do it with the threat profile going up. How do we create an amazing experience for people when they gather, right? All the professional sporting teams want people to, to be together. The guest experience is really important, and the last thing anyone wants to do in December is standing in a long, cold line to go see a football game. So really something that technology can help with now. So forget about the Second Amendment and what's going to happen or not happen up on the Hill. Now there's technology that can actually change things for people to gather, right?
Just like sensors and software is changing automotive, right, with Tesla changing everything in the EV world, and even Peloton here in New York uses advanced technology to change fitness. So we're using that same kind of fusing together of contemporary technology to allow people to gather in a different way. Really, really, really important. So we call this the protection paradox. So what is that? The two axes here are security and guest experience. And in the old world, before Evolv, if you wanted a sterile environment like the TSA is trying to create when we get on a plane... They have to, right? They have to make sure that things don't get on that plane, like bombs or knives or things that could make the plane go down and 300 or 400 people could die instantaneously. So they're looking to create a sterile environment.
We're not. Our use case is about safety and really mass casualties. We want to create a safer environment, but also be really mindful of the guest experience, right? That's the balance that we're trying to make. So we break this protection paradox. It's not all or nothing. It's not metal detectors trying to create a sterile environment. And by the way, it's really hard to do, not because, well, because the technology's looking for metal and not weapons, but also the alert fatigue from guards because they're, they have to pat down everybody. It's not very secure. A lot of that security is theater security. And then the other option is do nothing. And so this is a $20 billion TAM. $18 billion of that is non-regulated. So what do I mean by that? I mean that $2 billion is regulated by aviation-...
prisons, and now professional sports. You have to have a technology to keep people safe and to keep weapons out. But the other $18 billion are, is every school, is every hospital, is every house of worship, is every distribution warehouse that people are gathering, but they didn't want to put a metal detector in because it created that stupid line I just showed you a picture of. So what did they do? They did nothing, right? And so we break this, right? And now there's technology that allows us to put our technology in the doorway. People walk in like they used to, with the pace of life, and, without divesting, we can look for the weapons that they have on them. Now, there's no perfect solution. There's no perfect protection. Mark and I were both in cyber, now we're in cyber and physical security.
Everybody knows in the security industry there's no perfect solution, but we dramatically buy down the risk in finding weapons with people going in. We find 500 guns a day in North America, going into places they shouldn't. And most of those, not all, but most, are... You know, nobody has malintent. Nobody's bringing their weapon in to do something bad. They're bringing their weapon in because in their carry state, in Georgia, they carry their weapon. Grandma puts a little Glock 19 in her purse next to the lipstick, and that's her day, going shopping. It's okay. You know, it's okay. But don't bring it into the school. Don't bring it into private places it shouldn't be, right?
And so we ask, "Grandma, please put your gun or your purse back in the car, and then come on in and enjoy whatever you do." A lot of locations, like the ones that we protect, are private locations, and they have a "no carry your gun in here. Don't do that." And of course, with all the anxiety now in the world, a lot of people are carrying their gun because they think, "The other person has a gun I needed for protection." So people are carrying more weapons today than they used to, and they're settling things with their weapons in a way that they didn't before. And so there's a lot of risk out there, right? And so we want to use technology to create safer zones, so people can gather and know there's nobody there with a weapon.
Okay, any questions on this protection paradox? Okay. So, you know, we're upending the whole metal detector world by using technology to dramatically change how people gather. Our systems are 10 x faster than conventional technology today. Again, the big difference is we're looking for weapons, not metal. And most people, as I said, aren't carrying them. And then we're using the most contemporary technology in the world, right? So advanced sensors, AI, machine learning models. We use the cloud, so our customers actually push their scan data to our AWS cloud, which allows us to train our new machine learning models to make our system smarter over time. So all of our customers get the benefit of all of the other customers, which is really, really valuable.
So when you're screening 1 billion people and you have all this data, you can continue to increase your security accuracy and efficacy. So we're really, really proud of that. And we started the company, you know, we're. I keep telling our two co-founders, who are still with the company, that we're a 10-year overnight success as a company. We've been around for 10 years, and it took five years for our two co-founders and their technical team that had started two other companies, really, really smart threat detection people in aviation. And when the Boston Marathon bombing happened, they were there. One of our co-founders' wives was running, and they looked at each other and said, "Hey, we have some expertise here and an amazing team.
Let's see if we can go solve this problem outside of the aviation world, and where people gather, like the Boston Marathon, but they want to do it safely." And that really began the journey for the company. And it took about five years for us to bring our first product to market. This is a really hard problem to solve. You may ask later in your Q&A, you know, who's our competitors and who do we compete with? There aren't a lot of competitors today because it's a hard problem to solve. How do you find a concealed weapon on somebody while they're moving at the pace of life, right? And let everyone else go? And it was hard. So it took about five years. We came out with the first product called Edge. But the game-changing thing happened a couple of years later.
After listening to our customers, they said, "We don't want to go through the system one at a time. We want to come in like we normally come in, in big groups." So the Express product, which is the product you see here, allows a rugby scrum-like group of people, right? When you're going to see the Mets, people come in in big crowds to get in, go right through the system and not break stride. So really, really, you know, goes at the pace of life, really important. We have over 100 patents and the other thing that's really important, I mentioned scan data. We're able because we're a digital platform. Think about us doing the digital transformation, and it started happening during COVID, for customers in their egress. Metal detectors are dumb analog devices.
In fact, they can't even count the number of people that go through them. All they're doing is looking for metal, and then you wrap a bunch of security guards around it to say, "Hey, you know- ... What's your metal? Is it a gun?" That, that's what they do. It's a dumb, cheap device. We have a digital platform that captures data and actually allows our customers to use that data to understand their situational awareness about who came, what the arrival rates are, how to do staffing. At the, you know, at the end of getting people in a major stadium, I'll use the Atlanta Falcons as an example, they were one of our first customers. Has anyone been in the Mercedes-Benz Stadium in Atlanta before? Okay, so it's a big stadium. The roof goes open.
It's cutting edge in many, many ways, but 82,000 people go into that stadium. Within an hour of people being in their seats, you can see the picture on the right, we send the security advisor a dashboard of when the 82,000 people arrived, what gates they came in. There are five gates at Mercedes-Benz. There's five of our systems in every gate, what the threat profile was, what weapons they found during the thing, and they know exactly who came in, what gate they came in, what threat they saw. And in fact, many of our NFL customers are taking this report and sending it to the NFL so that the NFL can understand the security posture of our customers. So it's this data. As everyone knows, data is the new oil in business.
This data is really, really valuable for our customers to understand what's happening in their stadiums. Metal detectors don't do that. They're dumb. They're dumb. Okay, I mentioned a $20 billion TAM. It's really, really big. And if you close your eyes, when we think about going through those stupid metal detectors, you know, I think your, your dream brings you to the airport or, you know, or professional sports, right? You don't run into them in too many places. It's not because people don't want them, it's because what they do to the... It, it's not very welcoming. So that's the low- that's our market. We're going to the undeveloped $18 billion dollar TAM.
The museums here in New York, MoMA, Museum of Natural History, museums, performing arts venues, Lincoln Center, these are our customers that are keeping their venues safer and using our technology to do it. Schools, right? You know, I think all of us when we kids are, kiss our kids goodbye, and I have four, they're older now, it would be really nice to know that they when they were going to school, that there was some kind of technology in place to make sure that they could go to school and not have to worry about something bad happening. And all of our kids have gone through, mass shooter training and things like that, and it, and it's awful, and, you know, we'd like to use technology to help minimize that.
So long and short of it, there's a lot of places for us to go. We're very focused on $6 billion-$8 billion of that $18 untapped. These are the largest school districts, the largest hospitals, distribution warehouses, where people gather. That's where our team is. So we have about 300 people in the company today. We have people in every region in North America, calling on those schools, those hospitals, those performing arts venues that now can create a more frictionless experience to create a safer zone so people can gather. And that's what we've been on that journey now for 10 years, and as a public company for about 2.5. These are the benefits that our customers get when they put our solution in, right?
The first thing people choose us for, they want their security to be better. How do I bring up my security posture so that our place is safer? We know what's coming in and not coming into the venue. And by the way, a lot of people ask us about that system that you've seen the picture of. It's a thing, right? Different than cyber, where Mark and I are from. You know, the cyber technology is buried in the closet or in a cloud, people don't see it. But with our solution, you see it, and there's a deterrence factor, which is really, really important to physical security. If somebody is coming with malintent and they want to go in and do something bad, and they see that system, they're gonna go somewhere else. They're not gonna want to go there.
So, people have asked us about covert. Could you hide it somewhere? The truth is, our customers don't want us to hide it. They want it to be there, and they want to deter anyone bad from somebody trying to do something that's really bad.
Sorry, just-
Go ahead, Bob.
Sorry to interrupt, but-
Yeah.
With cyber, if someone is, if an enterprise is hacked, you know, the media and everyone else goes after the enterprise. They don't go after the cybersecurity company that often. What happens, you know, if someone gets in with a gun, what happens with the media and your, you know, customers, whether it's the Mets or whomever?
Mm-hmm.
I mean, what happens with the reputation of Evolv when, you know, the system doesn't work?
Yeah.
You said it's not perfect. People understand that.
Yes.
But things change, obviously, in the heat of the moment-
Yeah
... so what happens then?
Yeah, it's a great question. And Mark, I'm going to ask you to share your view on it as well.
Mm-hmm.
You know, from our cyber days, everybody knows the common knowledge in cyber is there's only two kind of companies in the world: the ones that know that an adversary has been in and the ones that don't. It's called an APT, if an advanced adversary wants to compromise your network, they're gonna find a way in. Right? Sending us an unsuspicious malware attack, they're gonna get in, and the goal in cyber is to keep them out as much as you can and use technology to do that. And then to reduce the dwell time, the amount of time they're in, so they can't take something out.
That's the world that we're used to, and the average number of technologies in an enterprise in cyber is 32 to do that. It's a thing, right? Physical security is the same way, that you need to use a layered approach, lots of different kinds of technologies to keep bad things from happening, knowing there's no perfect solution. And things have gotten in to some of our places, knives, and people have thrown things over the fence. And, you know, thank goodness, nothing tragic has happened yet. But it's probably just a matter of time, because the number of screenings that we have to do, this is an asymmetrical problem. We screen 2 million people a day. We have to keep 2 million something bad from happening, and a bad actor only has to get in once.
So, you know, this is the world we're in, so there isn't anything perfect. So we run to our customers and work with them to try to understand what happened. When somebody goes through our system and the system alerts, we act. And we only do this when the alarm goes off, we actually take a picture of the person and the threat. So we immediately go to our customers and say: "Let us go through our data and look at, you know, did somebody come through here? Were they carrying? Did the system detect it?" So we go to our customers and work with them to try to understand what happened, and that's what we do. Mark?
Yeah, I mean-
Yeah.
... we're really buying, you're buying down risk.
Yeah.
You're not eliminating risk.
Mm-hmm.
You can't do that with cyber, you can't do that with anything in life. We have an incident response team. So if something happens, we're aware of it, we're there to help law enforcement, we're there to help the organization that might be impacted by it. But there's no way to eliminate the risk completely. We found 300,000 guns and knives in the, you know, in the past-
Past year.
Last, in the past year. So we've actually, you know, when you think about what could have happened with any of those situations, identifying them, reducing that situation is fine. One gets through. We try to err on the side of, well, what did we stop? Not the one thing we couldn't, 'cause I just, it's not a perfect world.
And again, we stop 300 every single day. And this is data from our customers. When people come through and it alerts, our customers have an opportunity to say what it is. Is it a gun? Is it a knife?
Mm-hmm.
Is it something else? They, they tell us what it is, and it's about 500. So we're doing a lot of really good work out there, but there's nothing perfect, and we work with our customers to buy down that risk.
And-
Um.
A lot of who we're selling to are very sophisticated security buyers. They've been in this industry for years and years and years. They have studied other products. They're buying our product, and, you know, we're winning so many sports venues because they see what it can do against what our competitors have been able to do in the past. And I would put the efficacy of our system up against anybody in terms of its ability to find weapons that can cause problems.
Mm-hmm. Yeah. This is a tool, guys.
Yeah.
It's not a perfect tool. The truth is that even with this tool, the weakest link, just like in cybersecurity, is the human element. The security guard that may be a weekend security guard that's operating the system, that the system went off and maybe they didn't check the bag the way they needed to. It's the human side of it is the weak link anyway. That's the way it is. But, you know, how untenable is it to ask a stadium to keep weapons out when the only thing you has is a metal detector that goes off all the time, and then you have a Junior Woodchucks security guard wanding you, but looking the other way, right? That's the world that we're in. So things get in when you have that. Now, technology can up the ante. What's AI?
AI is about doing things at speed and scale and automating tedious tasks. Our technology is doing that, right? It's doing things at speed and scale that metal detectors couldn't do, but it's not perfect, but it really assists the security guard. So when that alarm goes off, they're paying attention now, 'cause with the metal detector, it goes off every time. Now, okay, maybe there's something there to go look at. And oh, by the way, when it does go off, we take a picture of the person, and we box where the threat is. So if Bob was going through, and he had a weapon on him, we're gonna take a picture of Bob, and we're gonna put a box around where the threat is, and we're gonna say to Bob, "I don't need to wand you or pat you down.
I don't need to touch you, but I want to see what's inside your jacket, because the alarm, here's a picture of what just went off." And Bob's gonna show us what's there, and what's there is gonna be either a weapon or something that looks like a weapon. So a lot of people ask us about false positives and false negatives. Mark and I lived in that world in cyber. It's the same in physical security. We err on the side of being conservative. If it looks something like a gun or a knife, we're gonna alarm, and we're gonna make sure that something bad doesn't get in. Most of our customers like to operate in single-digit false alarm rates, nuisance. We call it nuisance alarm.
So if there is an umbrella or an eyeglass case that looks like the barrel of a gun or the shaft of a gun, then we're gonna alarm, and we're gonna say, and Bob's gonna say: "Oh, it's my sunglass case." We let you in.
Mm-hmm.
Okay? Call it nuisance alarms.
I think the layer of security is really an important thing to take away. We're at the venue, we're at the digital threshold, we're at the venue door. We're gonna be a multi-product company because we know that that's not the only way to keep people safe. We have already launched another product called Evolv Extend, where we're gonna be able to find gun detection, you know, for anything brandished outside the environment. You know, through video analytics.
Mm-hmm.
So there's other ways for us to kind of add to that portfolio of capabilities that we have to try and keep people safe.
Yeah.
Mm.
By the way, because we're a digital platform, we can integrate into the things you already have there.
Mm-hmm.
People are using video, as you all know.
Mm-hmm.
There's cameras everywhere to watch what's going on. We can connect into the video system, so when somebody arrives at a stadium and they have video out in the parking lot, they're. You know, we can connect to that and make sure we know who's coming in, and we know if they crossed a threshold. We can connect to their access control and open gates. There's lots of capabilities that we can integrate to as well. And at the last thing I wanted to say about deterrence, having that thing there is really important to our customers. And by the way, that thing is not only has to do its job, it has to be very sophisticated. It has to work outside in the snow and during football games. It has to work in Florida, in the humidity and heat, and in the rain and the wind.
So it has to be robust and enterprise ready, and ready to do its job when we need it to. It also needs to be elegant. It needs to be beautiful because it's sitting in the lobbies of some of the most important venues in the world. Nasdaq's one of them. They're one of our customers. If you go to Nasdaq, and when we went public, people go through our system. So the design elements of the system, the robustness, this is not an easy problem to solve. And the last thing on deterrent that is a truism, we deployed our first school about four years ago. And if there's anything that talks to our mission more than keeping kids safe at school, I don't know what it is. It's something we love doing.
When Mark and I aren't doing work like this, we're somewhere in the country at 7:00 A.M. with our systems and having kids come into the school. It's our happy place.
Mm-hmm.
Really. It's part of what we do. But the other thing that's interesting, a lot of the schools don't tell the kids exactly what we're looking for, right? And as a result, on the first or second day of school, when we launch a new school, we call it go live day. When the doors shut and the kids are in school, the bell has just gone off, everybody's in, everybody's been safe. If you go to the bushes outside of the first day of school, that's where the vape pens are. That's where the marijuana is.
Mm.
That's where the things that they used to sneak into school are because they don't know what it is. So it's also the unintended consequence of us keeping things from coming in, where kids are not bringing things in that they normally would because they don't want... They don't want anyone to check their bag. So kids are ready to go to school, they're safer and ready to go. Yeah.
Well, it strikes me that if the inevitable happens, and the question to the security chief is: "Well, who did you hire?" And with that, to that point, where do you stack up vis-à-vis your competition?
Who did they hire in terms of, like, security-
Yeah
... people? Well, I mean, we don't dictate who they should hire in terms of security.
No, no.
Yeah.
You're in charge. You're the company, right? You're the company.
Yes.
So they hired you.
They, they-
They didn't hire us.
Right.
We don't... We provide the tool.
I think he's saying if there was an attack that got through, if there was a gun that got through-
Yeah
... how would they come back? Is that-
So, yeah.
How would they come at us?
Yeah.
Well-
I think like any litigation.
Where does your-
Yeah
... equipment stack up vis-à-vis-
Metal detectors or?
Competitive-
Yeah
... well, your system stack up-
Yeah
... vis-à-vis others?
Sure. Yeah.
Mm-hmm.
Well, a couple of things here. As we've said, there's multiple. If you're increasing your security posture as a school, as a business, as anything, you're layering your security so you have multiple things. That's a best practice every security person knows. That's number one. When people choose us, the people that choose us are former police officers in the military, they're security experts. They test our system themselves against other systems, side by side sometimes. They oftentimes test our system with weapons that they bring through themselves. They make their own decision. I'd mentioned the weakest link in that layer is the security guards. The best user of our technology in schools, the people that operate the system, are teachers. So why are they so good at this? It's 'cause they know the kids, right?
So when you take teachers that have this threat intelligence about every one of their kids at school, and you marry our technology with it, you dramatically increase your security posture. So I know I said a lot of things there. Your question, sir, I think, was: How does our technology compare to other technologies?
Exactly.
Yeah.
In a very public forum, such as, you know, some review by Gartner or something.
Yeah. So we're DHS certified, so we wish Gartner... So we, because we come from IT, there isn't an IDC, there isn't a Gartner, there isn't a Forrester for this technology. There's nobody following it that way. But there are third-party testing companies that do their own testing.
Yeah.
One of them that is really important is the Department of Homeland Security, DHS Safety Act. Professional sports requires to put technology in, that you have that DHS Safety Act. It took us 18 months, and it, it's a long, it's a hard process. We have that, and we got it about a year ago. So we have DHS safety approval, and it's one of the highest standards you can have for security technology.
I imagine several other companies do also.
Some other ones do. Yeah. Mm-hmm.
Some do, but they have to have access to the systems and use them. I think the most important thing to take away is that, you know, our security systems have levels, right? We, we have, we have seven levels. A metal detector has levels. If you set a level at, like, E for us, we're gonna find micro compact guns, things like that. If you set it at C or D, you know, they might not catch as much. So it's a measured thing that's kind of done on the side. And in schools, we have suggestions of what they should, what they should run for, for layers. I...
If we're put at an equal layer against another system, like, you know, one that we compete with the most, I think in our own world, we are doing better.
And remember, guys, you have to balance that detection rate-
Yep
... with the number of alarms.
Yeah.
Mm-hmm.
What's been the churn, or if you've had any?
Excuse me?
Churn.
Customer churn?
Yeah.
It's, well, look, we do four-year contracts, so we're at the very front end of starting to see, you know, we probably only have 1% kind of coming up for renewal this year. So it's, we have a renewals team. We're going through that. The churn rate so far has been very low. We are in the 95% plus category. We'll see if that continues over time.
Do you see why? What's the reason?
Mm-hmm. I think, I think a lot of it has to do with the you know, the religion of the security practitioner. If there's a new leader, and in that, if they've moved from one place to another and they like something else, they go back to what they, they like to use. I think places close. You know, that, that's a thing. You know, some places just out of business, and they're not doing things anymore. We've, we've had a little bit of that. But in terms of technology, you know, our renewal rates, we expect to be pretty good. Half of our customers own the system, right? So they've already bought it outright.
I think that puts us in a good spot for at least half of our customer base, who, you know, are they just gonna turn it off and put it in a closet? Unlikely.
I'm gonna land the plane here 'cause I know, Josh, you're gonna come up. I'm gonna let you read the other things here, but the number one thing is better security, but guest experience, insights, all, all of that is really important. I want also Mark to talk a little bit about our business model-
Mm-hmm
... 'cause it's really important to us.
Mm-hmm.
Just a list of some of our customers, really proud of that. Our go-to-market model is both, we have a direct touch team and a channel team, and a very predictable, SaaS model that Mark will tell you about.
Yeah. I'll give you the elevator pitch on our financials here.
Yeah.
So we're a SaaS company. We're 85% ARR and 15% license. The way we ended up in the license business is we are actually, for about half of our customers, letting our contract manufacturer distribute our product. We're a hardware design company. We're not a hardware builder, so we design the hardware, and we allow the contract manufacturer to put it together. When we do our subscription business, we do put that through our books. We buy the system, and we charge a rate to actually, you know, recoup that over time. But for anyone who wants to buy the system, that's not running through our books, and that's allowing us to have 60%+ margins and really put that SaaS profile out in front of the customer base. They're monthly subscriptions.
We charge a year in advance from a cash flow perspective. And, and again, I'll say it again, we do four-year SaaS contracts. So that puts us in a pretty good position in terms of a very important metric to, I think, this room would be our remaining performance obligation. We have $221 million exiting Q3 in remaining performance obligation. That's all the revenue we haven't recognized yet that's contracted. So the fact that we have these four-year contracts puts us in a very good state. Annual recurring revenue is a very important thing to us. You can see the rising bar, and we exited Q3 at $65.8 million. So we're on a good pick from that perspective as well. And I'll just show you our target model here.
We are trying to become, and will become, a Rule of Forty company, and the Rule of Forty, as we all know, is top line growth plus EBITDA. And so here's the metrics that we're putting forward, and we've talked about since our Analyst Day in May, of having long-term target margins of at least 60%, R&D in the range of 15%-20%, sales and marketing at 25-30, G&A at 10-12, and EBITDA in the 10%-15% range. This all assumes we're gonna be a 30%-40% growth company on the top line. If we think we can do better than that, we'll sacrifice EBITDA to do it. We will achieve; we've already begun to achieve the gross margin numbers.
I would say R&D will be a close second, G&A will come third, and sales and marketing will come fourth. We're really investing in sales and marketing right now to drive our company from what was an engineering start-up into a sales machine. And again, just to wrap up, we're the leader in AI weapons detection. This is a solution that is really changing this market. It's innovation that is taking stuff that's over 80 years old and really creating a discontinuity in the market. And it's a huge greenfield.
Awesome.
Thank you.
Well, I think, we're out of time.
Oh.
We did it!
Well, we got some questions in.
Yeah.
Thanks, everybody. Appreciate you coming.
Yeah. Thank you, everybody.