Evolv Technologies Holdings, Inc. (EVLV) Earnings

Management highlights

• Market Context and Strategy - Global elevated threat levels across education, healthcare, workplaces, and public venues, reinforced by ongoing global instability, are driving increased customer demand for scalable, reliable proactive weapons screening solutions. - Evolve's differentiated full-stack platform combines proprietary hardware/sensors, custom software, and proprietary AI models, with a real-world data feedback loop from deployed units that continuously improves performance. - The company delivers solutions via a hardware-enabled subscription weapons detection as a service model, with a focus on long-term recurring revenue and durable customer relationships. • Customer and End Market Progress - Added nearly 50 new customers in Q1, reaching ~1,300 total global customers across core verticals: education, healthcare, live entertainment/sports, and enterprise workplaces. - Education: Added over a dozen new K-12 district and municipal customers across 10 U.S. states, with policy developments like Georgia's HB 1023 reinforcing long-term demand for mandatory screening. - Healthcare: Added major systems including BronxCare Health System and West Virginia University Health System, expanding footprint across regional and community hospital settings. - Live Sports & Entertainment: Added high-profile venues including Subaru Park, a top NFL franchise, and a major Western U.S. multi-use arena, and serves as screening partner for 50% of 2026 playoff teams across pro basketball and hockey. - Enterprise: Added multiple large-scale customers including a top global tech firm and another Fortune 500 company, now serving over 30 Fortune 500 clients total. • Product Development - Expedite, the autonomous AI bag screening solution, continues to gain strong traction: in a six-month school deployment, it achieved an average alert rate of less than 2% across over 300,000 scanned bags. Bundling Expedite with Express increases average revenue per user (ARPU) while optimizing customer acquisition costs, and improves subscription stickiness. - 60% of eligible existing customers have already upgraded to the Gen2 Express platform, typically committing to new multi-year subscriptions that grow RPO. • Operational Updates - Onboarding of new global contract manufacturing partner Plexus is progressing as planned, with completion expected by the end of Q2 2026. The partnership will expand production capacity, global reach, and operational resilience. - The company has largely mitigated ongoing industry-wide semiconductor supply constraints and expects to meet full-year unit deployment targets; component pricing impacts were already incorporated into prior guidance assumptions. - The company has added experienced senior talent across AI/algorithms, product management, services, and IT to support scaled growth, and is investing in foundational back-office system upgrades, process improvements, and internal controls to support larger scale operations. - The shift to direct fulfillment of purchase subscriptions, implemented in mid-2025, is progressing as planned and delivers higher long-term total returns than the prior third-party distribution model.

Guidance

• Full-year 2026 total revenue guidance was raised upward to $175 to $180 million, from the prior guidance of $172 to $178 million, representing 20% to 23% year-over-year growth. The upward revision reflects a higher-than-expected mix of purchase subscriptions, incremental contributions from short-term rental subscriptions, and continued strong pricing and ARPU trends. • Full-year 2026 ARR guidance is maintained at $145 to $150 million, representing 20% to 25% year-over-year growth. • The company reaffirms it will end 2026 with comfortably over 10,000 total units deployed, with H2 2026 unit deployments expected to exceed H1 levels and grow over 25% year-over-year. • Full-year 2026 adjusted EBITDA margin guidance is maintained at high single digits (up from 7.6% in 2025), with operating expense growth expected to remain below revenue growth. Higher near-term costs from the increased purchase mix offset the upward revenue revision, leaving margin guidance unchanged. • Adjusted gross margin is expected to improve to the mid-50% range for the full year 2026, up from 52% in Q1. • The company expects to achieve cash flow positivity in the second half of 2026. • Q2 2026 revenue is expected to decline sequentially from Q1 2026 due to timing of backlog fulfillment of prior period purchase subscriptions, not due to weakening end market demand. H2 2026 total revenue is expected to be modestly higher than H1, with ARR growth outpacing revenue growth in H2. • The long-term adjusted EBITDA margin target of 10% to 15% set at 2023 Investor Day is no longer the expected baseline; management now sees potential for significantly higher long-term operating leverage, with full details to be shared at the June 9, 2026 Investor Day.

Segment performance

Evolve Technology operates a single core weapons detection as a service business with two primary product offerings: the core Express walkthrough weapons screening platform and the Expedite autonomous AI-powered bag screening solution. No separate segment-level financial results are reported. For the consolidated firm in Q1 2026: total revenue was $46.3 million, up 45% year-over-year. Annual Recurring Revenue (ARR) was $127.3 million, up 20% year-over-year. Adjusted gross margin was 52% (down from 61% year-over-year due to the shift to direct fulfillment of purchase subscriptions, a planned temporary headwind). Adjusted operating expenses were $26.9 million, up 16% year-over-year. Adjusted EBITDA was $3.9 million, up from $2.1 million year-over-year, for an adjusted EBITDA margin of 8.5% (up from 6.4% year-over-year). Remaining Performance Obligation (RPO) was $299 million, up 18% year-over-year driven by end market demand and Gen2 Express platform upgrades. As of Q1 2026, Expedite serves over 75 customers, representing 6% of total customers (up from 1% year-over-year), and 19% of new customers purchased Expedite in the quarter, almost always alongside the core Express platform.

Risks & headwinds

• Industry-wide semiconductor supply constraints remain an ongoing challenge, though the company has mitigated near-term impacts and incorporated component pricing assumptions into guidance. • All forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from expectations, including general macroeconomic conditions, changes in customer security spending priorities, and the ability to execute on scaling and operational plans. • Evolve operates in a market with existing mature competing products for bag screening, requiring continued differentiation to maintain market share.

Analyst Q&A

• Q: What is the current mix of purchase versus full subscription deals, and how will this mix shift in coming quarters? What is the typical revenue/ARR split for a hypothetical $100,000 deal for each deal type? Will gross margin continue to improve from Q1's 52%? /

  A: Historically the mix was 50/50, but the share of purchase deals has shifted to a sticky 55% purchase / 45% full subscription, which is reflected in the updated guidance. For a full subscription deal, 100% of the deal value is included in ARR. For a $100,000 purchase deal, roughly 30% to 40% is recognized as upfront product revenue, with the remaining 60% to 70% recurring as ARR for software and service. Gross margin is expected to reach the mid-50% range for the full year, an improvement from Q1, with mix impacting the quarterly margin: higher subscription mix improves margins because costs are spread over the asset's life, while purchase deals recognize all hardware costs upfront in the first period.

• Q: Why was revenue guidance raised but adjusted EBITDA margin guidance unchanged? How is Expedite differentiated from competing bag screening products? /

  A: The upward revenue revision is primarily driven by a higher near-term mix of purchase deals, which require recognizing all related hardware costs upfront in the same period, offsetting the revenue upside for margin. Additional planned investments in talent and operational systems also contribute to holding margin guidance steady. Competitors offer mature X-ray scanning products, but Evolve's Expedite is fully differentiated: it is fully autonomous, with AI that analyzes X-rays with no need for a human operator or on-device display, enabling higher conveyor throughput, it integrates fully with Evolve's end-to-end security platform so all alerts are viewed in a single interface by one operator, and it connects to a single cloud portal for unified performance reporting.

• Q: How is Evolve using generative AI internally, and what are the 2026 hiring plans after the Q1 senior talent additions? /

  A: Evolve is a full-stack technology company that builds its core AI detection models in-house, and views generative AI as an operational efficiency tailwind for internal processes. It is using generative AI to speed product time-to-market and automate repetitive, mundane internal tasks, with appropriate governance and guardrails in place. The critical senior talent hires across key functional areas have already been completed in Q1. Remaining 2026 hiring will focus on scaling the business to meet growing demand, while maintaining the commitment to grow operating expenses at a lower rate than revenue.

• Q: Have sales cycles changed this year, does bundling Expedite with Express change sales cycle length, and what is the status of Gen2 platform upgrades? /

  A: Sales cycles remain consistent, falling into two categories: very rapid cycles for customers responding to an acute security event, and longer traditional cycles with standard budgeting and approval processes. Expedite's industry-leading low alert rate reduces customer burden, which can shorten sales cycles, and bundling it with Express allows the company to sell two units/subscriptions in the same sales cycle without elongating the process, improving unit economics by lowering customer acquisition cost per unit. To date, 60% of eligible existing customers have already upgraded to Gen2 early, most committing to new four-year subscriptions that drive RPO growth.