Evolv Technologies Holdings, Inc. Q2 FY2025 earnings call

• The company received a voluntary document request from the U.S. Attorney's Office of the Southern District of New York in November 2024 and was informed on August 7, 2025, that it was no longer the subject of a DOJ investigation.
• A settlement in principle was reached with the securities class action lawsuit pending in the District of Massachusetts, with direct financial exposure expected to be no more than $1 million.
• Revenue was $32.5 million, up 2% sequentially and 29% year-over-year; ARR was $110.5 million, up 27% year-over-year.
• It reported the third consecutive quarter of positive adjusted EBITDA with a margin of 6% in Q2 '25.
• Total cash, cash equivalents, and marketable securities increased by $2 million sequentially in Q2 '25.
• Over 60 new customers were welcomed in Q2, and the company now serves over 1,000 customers globally; it also surpassed 7,000 active subscriptions and 3 billion people screened by Evolv Express.
• Approximately 54% of booked units and 56% of booked ARR in Q2 came from existing customers.
• eXpedite added 8 more customers in Q2 '25, with the total reaching 20 since launch; demand for eXpedite was encouraging in Q3.
• The education market witnessed larger school districts' phase deployments and a $15 million contract with Gwinnett County Public Schools.
• Healthcare had wins with multiple institutions; the sports and entertainment sector had marquee wins and renewals.
• The purchase activity for the purchase subscription model was shifted back to direct fulfillment from distribution fulfillment to drive higher ARR and customer stickiness.

Revenue for Evolv Technologies in the second quarter of 2025 was $32.5 million, marking a 2% sequential increase and a 29% year-over-year growth. Annual recurring revenue (ARR) as of June 30, 2025, stood at $110.5 million, showing a 27% year-over-year growth. The adjusted EBITDA was positive $2 million in Q2 '25 with an adjusted EBITDA margin of 6%. Total cash, cash equivalents, and marketable securities reached $37 million in Q2 '25, an increase of $2 million sequentially. Approximately 54% of booked units and 56% of booked ARR in Q2 originated from existing customers. The autonomous AI-based bag screening solution, eXpedite, added 8 more customers in Q2 '25, bringing the total to 20 since its launch. In the education market, larger school districts were involved in phase deployments, and a $15 million contract was secured with Gwinnett County Public Schools. Healthcare saw wins with institutions like Ohio State University Wexner Medical Center, Virginia Mason Franciscan Health, and Broward Health. The sports and entertainment sector had marquee wins such as with Inter Miami CF and renewals with several long-standing customers. The go-to-market model is shifting purchase activity back to direct fulfillment from distribution fulfillment for the purchase subscription model.

• The revenue growth outlook for 2025 was raised to 27% to 30% from the previous guidance of 20% to 25%.
• Adjusted gross margin is expected to be in the range of 54% to 56% for the remainder of 2025.
• The company expects to deliver positive full-year adjusted EBITDA with mid-single-digit full-year adjusted EBITDA margins.
• It remains on track to be cash flow positive in the fourth quarter of 2025.
• A new $75 million non-dilutive credit facility was secured to strengthen the balance sheet.

Forward-looking statements are subject to material risks, uncertainties, and assumptions, including those outlined in the annual report on Form 10-K for the year ended December 31, 2024, and the quarterly report on Form 10-Q for the 3 months ended June 30, 2025. The settlement in principle with the securities class action lawsuit is subject to negotiation of definitive documentation and court approval. The shift to direct fulfillment for the purchase subscription model creates a year 1 gross margin headwind but is expected to lead to stronger long-term growth.

Q: Congrats on the strong momentum in the business. What is the mix of full subscription deals, lease deals versus purchase subscription deals going forward?

A: As you've seen, the business mix of product shift this - the first part of the year it will depend in any one quarter or period of time you're looking on do we have a large order that could skew that mix in any single direction. We have been expecting to see more subscription over time, especially as we take down the distribution purchase method that we touched on a couple of times in the prepared remarks. So you should be seeing a longer-term shift towards more subscription. As we get into 2026, probably a little bit more balanced towards 50-50, but we'll talk more about that in the second half. Hopefully, that gives you some direction of what we've seen in the near-term and some of the things we have to consider in the mix do depend on some large deals in any particular period.

Q: Understood. Helpful. And then I wanted to get an understanding, as you've gone through this new certified preowned program, repurposing the Gen1 Express machines. First, how much does it cost to refurbish those machines to make them CPO ready? And I wanted to get a sense for the traction that you're seeing on that program to help install -- because really, I guess it's about installing just more total units out there in your base.

A: The program is brand new. We actually have released a brand name for it. It's called Evolv Flex, and that is where we redeploy units that were previously leased. In terms of refurbishment costs, we're doing our very best to keep those costs as reasonable as possible and make sure that we provide the experience for our customers that flex us and the experience that we want them to have. I'm pleased to say that we've received our first orders for the Flex program, but it's still early in the life cycle of that.

Q: Lots of great news, no doubt. Business is accelerating. What's the thinking with respect to hiring for the remainder of the year? And maybe as a follow-up, so the increase in revenue is highly notable when compared with prior quarters. Does it mean ARR accelerates for the remainder of the year? I know you don't guide to ARR, but I would imagine there could be some positive correlation here. Am I thinking correctly about it?

A: Probably we have been hiring in very targeted areas, R&D and some of our services teams. But it's in the low single-digit percentage-wise in terms of total headcount. Our total OpEx is approximately now where you should think about it through the rest of the year, although you could see a slight uptick for the SOX and automation investment that I talked about in Q1, if you remember, where that will ramp a bit in the second half. And there will be some additional targeted headcount adds in the second half, but nothing major. You also asked about ARR a bit, and I'll give you a little bit of color on that. You're right, we don't guide specifically on ARR. That said, you should expect ARR to, of course, lag or be less than the total revenue growth because of the IP license fees that we had in the first half. And there, of course, will be some purchase arranged deals in the second half that will just take away from the pure subscription, which would match revenue. So there will always be a gap in between those 2, naturally speaking. And quite -- maybe to wrap that up, that is largely dependent on customer purchasing requirements where they have to treat some as a CapEx or not, whether that's a government customer, whether that's a school, whether that's somebody else, that's largely driven by customer choice.

Q: I wanted to address the renewals. I know you're early on in the renewal process with your installed base. But just curious to know if you've picked up anything as far as the -- either the gross renewal, the net revenue retention? What can you tell us about renewals?

A: Last quarter, we said that about 400 units will be up for a natural renewal in 2025. It's a natural expiration of their 4-year date. And we also talked about the FTC resolution and what we saw there with 237 units across 65 customers and a 94% net unit retention. To update on the 400 units, about 200 of those were actioned in the first half, 40 of which were actually from the second half. So the team is doing a good job moving ahead and derisking renewals. And because some of those customers also expanded, we saw a net unit retention of over 100%. I'll remind you that these numbers, 400, the 237, they're still relatively very small. We're talking about less than 5% of the units that we have out there. So we're focused on it and pleased on the early signs that we're seeing.

Q: We're excited about the color you gave on the different end markets and definitely looks like there's some good momentum in education. I was wondering if you could just kind of give us some puts and takes as to where you might see the biggest opportunity in terms of end markets over the next year or so.

A: We like the diversity that we have across the verticals, education, sports and entertainment, healthcare, we talk about quite a bit. We also talked about some wins that we've had in industrial workplaces that we're pleased about and the fact that we have a pretty good vertical mix with overdependence in any one of those that I mentioned. And we hope to see that continue and see more opportunities come up. We're also looking at the office space market with some unfortunate events that have occurred, and we want to diversify as much as possible. We think our application is very horizontal in its solution for security use cases.

Q: On the new credit line, if you guys end up kind of driving this full service lease a little bit faster than you expect, could you see yourself pulling down that second draw of the credit line sooner than you might expect? Or just can you provide any color on when you might actually go and pull down that second part of the line?

A: Yes, you bet. Thanks for the question. Well, I would point you to the momentum in the business that we have right here in front of us, including being cash flow positive this quarter. That non-dilutive, I guess, alternative that we have with the debt facility does give us the ability and more horsepower when we need it. But that first $30 million, if you look at our business today, should serve us for a while. Yes, I wouldn't want to be talking too much on '26, '27 or other hypotheticals at this point.

Q: Could you give some color on if you're seeing more interest from the California hospitals?

A: Healthcare continues to be a strong vertical for us as hospitals and hospital provider networks focus on both patient and healthcare worker safety. I see the -- we see the California legislation as a further tailwind and just more attention on the importance of workplace safety in the healthcare environment. We have secured some wins, healthcare wins in California, and we remain focused on that specific opportunity, just like we focus on healthcare overall across of the nation. I'll remind you that the time line for that legislative action ends out in 2027. That's how long hospitals have in California to meet those requirements. So we're going to continue to work with customers there Q: In terms of the higher ARR, is it about 30% higher when you're doing those deals over the...

A: 30% higher. Jeremy, it's substantially higher. I haven't disclosed the exact amount. In the distribution model, remember, the equipment never touches our books. Our channel partners purchase it directly from a disti. Now our channel partners are purchasing from us. So we see the entire revenue of the hardware and that purchase price in that hardware is slightly different. The delta that we saw in the values of the 2 deals, which is very significant, largely came out of ARR. So the ARR is substantially higher on the purchase subscriptions.