Evolv Technologies Holdings, Inc. Q3 FY2025 earnings call

• Revenue was $42.9 million, up 57% Y/Y due to strong new customer acquisition, expanded deployments, and large customer wins.
• ARR was $117.2 million, up 25% Y/Y, with Q3 marking the strongest booked-to-deployed unit ratio in company history.
• Welcomed over 60 new customers in Q3, raised year-end active subscriptions estimate to 8,000-8,100.
• Customers proactively upgrading to Gen2 Express platform, driving 8% sequential increase in RPO.
• eXpedite, autonomous AI-powered bag screening solution, gained strong traction with 12 new customers in Q3, especially in schools.
• Announced strategic partnership with Plexus to expand production capacity, global reach, and operational resiliency.
• Released latest versions of software including Evolv Express 9.0, Evolv eXpedite 1.2, etc., with enhancements for user experience and security operations.

Revenue for the third quarter of 2025 was $42.9 million, a 57% year-over-year increase. Annual recurring revenue (ARR) was $117.2 million, reflecting a 25% year-over-year growth. Remaining performance obligation (RPO) was approximately $299 million at the end of Q3. Adjusted EBITDA was $5.1 million in Q3 with an adjusted EBITDA margin of 12%. The company saw strong new customer growth, expanded deployments, and benefits from certain short-term contracts and large customer wins. The revenue contribution from different segments isn't explicitly broken down by percentage in detail, but overall, the growth was driven by various product deployments and customer acquisitions.

• 2025 revenue expected to grow by 37%-40% to $142M-$145M, up from previous guidance of 27%-30%. Excluding onetime items, 2025 revenue growth expected at ~30% Y/Y.
• 2025 adjusted gross margin expected in 52%-54% range due to shift to direct purchase fulfillment.
• 2025 expected to have positive adjusted EBITDA with high single-digit margins and cash flow positive in Q4.
• 2026 planning to add more units than 2025, with ARPU trends stable, ARR expected to grow by at least 20% and outpace revenue growth, 2026 revenue modeled at $160M-$165M.

Q: Congratulations on the very strong results. Just want to come back to the kind of the call outs of some of the onetime items here. Understand certainly for the short-term contracts, the $1.5 million of why you would exclude that and understand kind of the front revenue recognition of some of those deals that are going through distributor. But in terms of thinking about the build overall -- you do have the largest increase you've seen in recurring revenues as well as the largest increase you've had in RPO in a quarter. So just help me understand in terms of the large contract, how the revenue recognition overall on that will play out on a go-forward basis as an example.

A: Jeremy, I'll start and Chris can address any other specifics you might have. So as we communicated in the prepared remarks, we just shared, one of the impacts of legacy distribution model is more upfront revenue. We have largely moved away from that and the majority of our purchase subscriptions were executed through our direct fulfillment. But there'll be a tail of effect about how we take revenue on those deals over time, and that will normalize and result in a new pricing that we've already put in place months ago in July 1. As Chris mentioned, we'll ultimately recognize about $5 million of that order. It's a very significant proportion of the total order that we'll take in the first 2 quarters of a 48-month deal. Again, we expect that to adjust to the overall longer 48-month revenue recognition as we get into 2026.

Q: Understood. That's helpful. Dovetails nicely, though into -- I wanted to ask about the new strategic contract manufacturer agreement you've entered into. In terms of how you expect that to change what your baseline cost is for Gen2 or potentially Gen3 machines on a go-forward basis. Can you give us a sense for whether or not you expect that to reduce the manufacturing cost for the Gen machines -- I'm sorry, for the Express machines and whether or not they're also going to be manufacturing eXpedite and what that might do for the ramp of that business as well?

A: Jeremy, we're pleased and looking forward to the partnership with Plexus. We just executed that agreement. We're focused on onboarding them and get them to start manufacturing our product, which we will be focused on through the first half of 2026. Over time, we look forward to a larger scale and the potential of cost synergies that will come and the ability to be able to leverage their entire footprint.

Q: In terms of the eXpedite bag scanner product, what is the rough attachment rate that you're getting with that on sales of Express machines? And how does that vary? Are you getting more success with that, let's say, in the education vertical or in the stadium vertical versus a couple of your other verticals?

A: We're very pleased with the progress of eXpedite -- as we have shared in the prior quarter, a very significant portion of that large education order was eXpedite. In Q3, we had 12 new additions of eXpedite customers. To answer your question directly, 11 of those also acquired Express. And that's a trend that we're really excited about. We have seen deployments across education, sports, entertainment and health care.

Q: You talked about the number of units growing in '25 versus '24. Is that -- are we talking aggregate units, so Express plus eXpedite in 2025 is greater than '24 and the same thing, '26 versus '25? Are we talking the Express units only?

A: The aggregate units, of Express and eXpedite, which is consistent with how we've been discussing this year.

Q: On results, and thanks for the color and transparency on the business and the outlook. As you guys shift away from distribution to direct fulfillment model, just curious, what was the reaction of some of those channel partners involved?

A: It's very positive. There's one thing I want to make sure we're very clear on. This had no impact on our channel. But the majority of our business as it has, continues to transact from a channel. What the change was is how our channel partners get the product from us. In the past, in the motion that we introduced in 2023, they would purchase it from a distributor. Now they purchase it directly from us, which means that we capture 100% of the ARPU. We did not see the portion that went through distribution. So from a direct channel partner reaction, we have simplified their buying process. They used to have to buy one solution to an end user by issuing 2 orders, one to our distributor contract manufacturer for the hardware and one to us for the subscription. So their process to do business with us is much simpler.

Q: Could you tell me what percentage of your bookings came from existing customers?

A: Yes, for sure. This is Brian. It was well over 50%. A bit of that was slightly skewed in that one of the largest orders in the company's history was actually an order that started very briefly in Q2. So if I exclude that, it would be right around 50% on the quarter, it was higher because of that. So we're certainly seeing very significant expansions from existing customers to both Express and now eXpedite as well.