Evolv's Q3 2025: Contradictions in Revenue Recognition, Manufacturing, and Subscription Growth Strategies

Date of Call: November 13, 2025

Financials Results

• Revenue: $42.9M in Q3, up 57% YOY (management states a more normalized view of ~$35-$36M, ~30% YOY excluding one-time items)
• Gross Margin: Adjusted gross margin 51% in Q3, compared to 64% in prior year; company expects 2025 adjusted gross margin of 52%-54%
• Operating Margin: Adjusted EBITDA margin 12% in Q3 (positive $5.1M), compared to adjusted EBITDA loss of ~$3M in Q3 prior year; full-year 2025 adjusted EBITDA margins expected in the high single digits

Guidance:

• 2025 revenue raised to $142M-$145M (37%-40% growth); normalized 2025 growth ~30% ex one-time items
• 2025 adjusted gross margin expected 52%-54%
• Deliver positive full-year adjusted EBITDA with margins in the high single digits
• Expect to be cash-flow positive in Q4 2025
• 2026 modeled revenue $160M-$165M; plan to add more units in 2026 than in 2025
• ARR expected to grow at least 20% in 2026 and to outpace total revenue; $5M-$10M of 2026 revenue may be deferred into ARR/RPO

Business Commentary:

• Revenue Growth and Customer Acquisition:
• Evolv Technology reported revenue of $42.9 million in Q3 2025, up 57% year over year.

• Growth was driven by strong new customer acquisition, expanded deployments within existing customers, and higher one-time product revenue.

• Transition to Direct Distribution Model:

• The company's annual recurring revenue (ARR) reached $117.2 million, reflecting a 25% year-over-year growth.

• The difference between revenue growth and ARR growth can be attributed to the transition from the legacy distribution model to direct fulfillment.

• Unit Growth and Market Penetration:

• The deployed unit count grew by approximately 30% year over year.

• Growth was supported by over 60 new customers in Q3 and an increasing trend of customers upgrading to the Gen2 Express platform.

• Expedite Product Adoption:

• In Q3, Evolv added 12 new customers for the Expedite autonomous AI-powered bag screening solution, primarily in schools.
• The adoption was driven by its integration with the Express platform for enhanced security and user experience.

Sentiment Analysis:

Overall Tone: Positive

• Management reported Q3 revenue $42.9M (+57% YOY), ARR $117.2M (+25% YOY), four consecutive quarters of positive adjusted EBITDA (Q3 adjusted EBITDA margin 12%), raised 2025 revenue guidance to $142M-$145M, and projects 2026 ARR growth of at least 20% with ARR outpacing revenue—signals momentum and confidence.

Q&A:

• Question from Jeremy Hamblin (Craig-Hallum): How will revenue recognition for the large contract play out going forward given the one-time items?
  Response: Legacy distribution accounting drove upfront revenue recognition for the large order; revenue will normalize over the 48-month contract (tail effects now) and shift to longer-term ARR recognition in 2026.

• Question from Jeremy Hamblin (Craig-Hallum): How will the Plexus strategic contract manufacturer agreement change baseline manufacturing cost and support Expedite ramp?
  Response: Plexus onboarding (targeted through H1 2026) will scale production across the portfolio and is expected to yield cost synergies and improved operational resiliency over time.

• Question from Jeremy Hamblin (Craig-Hallum): What is the attachment rate of Expedite to Express and does it vary by vertical?
  Response: High attachment—of 12 new Expedite customers in Q3, 11 also acquired Express; strong traction especially in education, and deployments span sports, entertainment, and healthcare.

• Question from Eric Martinuzzi (Lake Street Capital Markets): When you say units growing in 2025 vs 2024, is that aggregate or Express only?
  Response: Aggregate units (Express plus Expedite).

• Question from Eric Martinuzzi (Lake Street Capital Markets): Can you remind me the delta between price/economics of Express and Expedite if purchased outright?
  Response: Unit economics are similar over time; Expedite currently has higher manufacturing cost at subscale, but is sold on a four-year subscription and margins should converge as scale and manufacturing improve.

• Question from Shaul Eyal (TD Cowen): What was the reaction of channel partners to shifting from distribution to direct fulfillment?
  Response: Channels reacted positively; buying process simplified (partners now buy directly from Evolv), and the change captured 100% of RPO without reducing channel involvement.

• Question from Shaul Eyal (TD Cowen): How many triple-digit (100+ unit) transactions are in the pipeline?
  Response: Management declined to provide pipeline specifics; reiterated they are planning to grow unit additions in 2026 (including building on the large 250-unit order).

• Question from Michael Lattimore (Northland Capital Markets) / Aditya: What percentage of bookings came from existing customers?
  Response: Well over 50% of bookings came from existing customers; excluding the very large order it was roughly 50% for the quarter.

• Question from Michael Lattimore (Northland Capital Markets) / Aditya: Any color on promising new verticals like warehouse or office?
  Response: Vertical mix remains consistent—sports/entertainment, education, and healthcare are largest; management sees opportunities in broader enterprise (e.g., a large Fortune 500 distribution customer) but no material shift yet.

Contradiction Point 1

Revenue Recognition and Distribution Fulfillment Model

It involves changes in revenue recognition and distribution fulfillment models, which are crucial for understanding financial projections and operational strategies.

How will the revenue recognition and distribution fulfillment model impact the large contract over time? - Jeremy Hamblin(Craig-Hallum)

2025Q3: The legacy distribution model results in more upfront revenue. The shift to direct fulfillment will normalize this over time. The $5 million upfront revenue is part of a large 48-month deal, and we expect it to adjust to a longer revenue recognition pattern by 2026. - John Kaczorski(CEO)

What is the expected mix between full and purchase subscription deals for the remainder of the year? - Jeremy Hamblin(Craig-Hallum)

2025Q2: Our sales channel and go-to-market strategy continues to evolve as we transition to a direct fulfillment model for our products, which we believe will provide us with more control over our sales process, pricing, and customer experience. - John Kedzierski(CPO)

Contradiction Point 2

Impact of New Strategic Contract Manufacturer Agreement

It affects the company's manufacturing strategy and potential cost synergies, which are important for operational efficiency and financial performance.

Can you discuss the impact of the new contract with Plexus on manufacturing costs and product ramp-up? - Jeremy Hamblin(Craig-Hallum)

2025Q3: We expect Plexus to manufacture our full portfolio eventually, potentially leading to cost synergies and a larger scale. We're proceeding thoughtfully to ensure quality and reliability. - John Kaczorski(CEO)

What will be the mix of full vs. purchase subscription deals for the remainder of the year? - Jeremy Hamblin(Craig-Hallum)

2025Q2: The new direct fulfillment model will enable us to provide more control over our sales process, pricing, and customer experience while reducing the distribution and handling costs. - John Kedzierski(CPO)

Contradiction Point 3

Shift in Distribution Model and Revenue Recognition

It involves changes in the company's distribution model and revenue recognition strategy, which directly impact financial forecasts and expectations.

How will the impact of revenue recognition and distribution fulfillment models on the large contract evolve over time? - Jeremy Hamblin (Craig-Hallum)

2025Q3: The legacy distribution model results in more upfront revenue. The shift to direct fulfillment will normalize this over time. The $5 million upfront revenue is part of a large 48-month deal, and we expect it to adjust to a longer revenue recognition pattern by 2026. - John Kaczorski(CEO)

How does transitioning from subscription to distribution deals impact cash flow? - Jeremy Hamblin (Craig-Hallum)

2024Q2: We expect distribution model activity to reach 50% by Q4. Cash usage will increase in Q3 but will return to the $60 million level by year-end. We will reach profitability without additional debt by Q2 2025. - Mark Donohue(CFO)

Contradiction Point 4

Impact of Strategic Contract Manufacturer Agreement with Plexus

It influences the manufacturing costs and product ramp-up strategy, which could affect operational efficiency and product delivery timelines.

Can you explain how the Plexus contract affects manufacturing costs and product ramp-up? - Jeremy Hamblin(Craig-Hallum)

2025Q3: We expect Plexus to manufacture our full portfolio eventually, potentially leading to cost synergies and a larger scale. We're proceeding thoughtfully to ensure quality and reliability. - John Kaczorski(CEO)

What’s the expected gross margin impact from the Gen2 Express rollout? - Jeremy Hamblin(Craig Hallum)

2025Q1: Our products are not significantly exposed to tariffs. Evolv Express is less than 5% Chinese. - John Kedzierski(CEO)

Contradiction Point 5

Growth in New Subscriptions and Units

It impacts the company's growth strategy and financial projections, affecting investor expectations.

What percentage of bookings came from existing customers? - Michael Lattimore(Northland Capital Markets)

2025Q3: Over 50% of bookings came from existing customers, with significant expansions to both Express and Expedite. - Brian Norris(CFO)

Can you provide details on the success of your expansions, particularly in which verticals? - Jeremy Hamblin(Craig Hallum)

2025Q1: Evolv is seeing significant customer commitment, with 50% of new subscriptions coming from existing customers. - John Kedzierski(CEO)