Evolv Technologies' Q3 2025 Earnings Call: Contradictions Emerge on Revenue Recognition Shifts, Unit Economics, Regulatory Challenges, and Strategic Industrial Expansion

Date of Call: November 13, 2025

Financials Results

• Revenue: $42.9M, up 57% YOY
• Gross Margin: Adjusted gross margin 51% in Q3, compared to 64% in the prior year (2025 outlook 52%–54%)

Guidance:

• 2025 revenue raised to +37%–40% (~$142M–$145M); normalized 2025 growth excluding onetime items ~30% YoY
• 2025 adjusted gross margin guide 52%–54% and positive full-year adjusted EBITDA with high-single-digit margins
• Expect cash-flow positive in Q4 2025
• 2026 modeled revenue $160M–$165M; expect ARR to grow at least 20% and to outpace total revenue
• Plan to add more units in 2026 with ARPU stable; $5M–$10M of 2026 revenue expected to be deferred into ARR/RPO

Business Commentary:

* Revenue Growth and Distribution Model Transition: - Evolv Technologies reported revenue of $42.9 million for Q3 2025, up 57% year-over-year. - The growth was driven by strong new customer acquisition, expanded deployments within existing customers, and higher onetime product revenue associated with certain customer wins. However, the company noted that the trailing effects of legacy distribution fulfillment and a higher proportion of purchase units led to revenue growth outpacing unit and ARR growth.

• ARR and RPO Expansion:
• Evolv's annual recurring revenue (ARR) reached $117.2 million, reflecting 25% year-over-year growth, albeit trailing revenue growth for the quarter.

• The remaining performance obligation (RPO) stood at approximately $299 million, up sequentially by 8%, driven by customer upgrades to Gen2 platforms and new customer additions, particularly in the education sector.

• Impact of Strategic Partnerships and Product Development:

• Evolv signed a new strategic partnership with Plexus, aiming to enhance production capacity and operational resiliency, which is expected to support future growth.

• The release of new software updates, including Evolv Express 9.0 and Evolv eXpedite 1.2, showcases continued product improvement and customer satisfaction, contributing to a growing customer base worldwide.

• Outlook and Guidance Adjustments:

• Evolv raised its 2025 revenue guidance to 37% to 40% growth, reflecting a strong backlog and healthy pipeline. The upward revision includes onetime benefits related to legacy revenue recognition and distribution models.
• For 2026, the company expects ARR growth to outpace total revenue growth, indicating a shift towards more sustainable recurring revenue and long-term value creation.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Revenue was $42.9 million, up 57% year‑over‑year." They raised 2025 outlook to +37%–40% and said Q3 delivered "fourth consecutive quarter of positive adjusted EBITDA" with 12% margin. CFO: "Expect to be cash flow positive in the fourth quarter of 2025." Management models 2026 revenue $160M–$165M and expects ARR to grow at least 20%.

Q&A:

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): How will the revenue recognition for the large contract play out on a go-forward basis given the onetime items and legacy distribution effects?
  Response: The legacy distribution tail caused upfront recognition; roughly $5M of that large order was recognized in the first two quarters of a 48‑month deal and will normalize to 48‑month recognition into 2026.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): How will the new strategic contract manufacturer (Plexus) change baseline costs for Express and eXpedite and what will it do for ramp?
  Response: Plexus will onboard in H1 2026 to manufacture the portfolio, expanding capacity and enabling cost synergies over time to reduce manufacturing costs.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): What is the attachment rate of eXpedite to Express and does it vary by vertical (education vs stadiums, etc.)?
  Response: Strong attachment: in Q3 11 of 12 new eXpedite customers also acquired Express; deployments span education, sports/entertainment and healthcare.

• Question from Eric Martinuzzi (Lake Street Capital Markets, LLC): When you say unit growth in '25 vs '24 and '26 vs '25, are you referring to aggregate units (Express plus eXpedite) or Express only?
  Response: Aggregate units — including both Express and eXpedite.

• Question from Eric Martinuzzi (Lake Street Capital Markets, LLC): What's the pricing/ unit economics delta between Express and eXpedite if purchased outright?
  Response: Unit economics are similar long term; eXpedite currently has higher costs (a near-term gross margin headwind) but margins should converge as scale and manufacturing improvements occur; it's sold on a 4‑year subscription model.

• Question from Shaul Eyal (TD Cowen): What was the reaction of channel partners to the shift from distribution to direct fulfillment?
  Response: Channel reaction has been positive; channels still transact but now buy directly from Evolv, simplifying the buying process and allowing Evolv to capture 100% of ARPU.

• Question from Shaul Eyal (TD Cowen): How many triple‑digit (100s+ unit) transactions are currently in the pipeline?
  Response: No specific pipeline counts were disclosed; management reiterated they are modeling unit growth for 2026 (building on the 250‑unit award) but did not quantify similar large deals in pipeline.

• Question from Michael Latimore (Northland Capital Markets): What percentage of bookings came from existing customers this quarter?
  Response: Well over 50% of bookings were from existing customers; excluding the largest order, the share was about ~50% for the quarter.

• Question from Michael Latimore (Northland Capital Markets): Any color on new verticals — are warehouse or office showing promise?
  Response: Vertical mix remains consistent with the largest verticals being sports & entertainment, education and healthcare; company is exploring broader opportunities including a Fortune 500 distribution customer but provided no new vertical breakout.

Contradiction Point 1

Revenue Recognition and Business Model Transition

It involves changes in revenue recognition models and the impact of strategic shifts, which are critical for understanding the company's financial health and growth strategy.

Could you clarify the revenue recognition for the Gwinnett County contract and its timeline? - Jeremy Hamblin (Craig-Hallum Capital Group LLC)

2025Q3: The legacy distribution model resulted in higher upfront revenue compared to the direct fulfillment model. A significant portion of the $5 million revenue recognition will occur in the first two quarters of the 48-month deal. - John Kedzierski(President, CEO & Executive Director)

What is the expected mix of full subscription deals, lease deals, and purchase subscription deals fulfilled in-house in the second half of the year? - Jeremy Hamblin (Craig-Hallum)

2025Q2: As you've seen, the business mix will depend on any large orders that could skew the mix. We expect to see more subscription over time as we take down the distribution purchase method. - George Kutsor(CFO)

Contradiction Point 2

Unit Economics and Gross Margins

It involves changes in unit economics and gross margin expectations, which are critical indicators for investors and stakeholders.

What is the difference in unit economics between Express and eXpedite, and do they have different gross margins? - Eric Martinuzzi (Lake Street Capital Markets)

2025Q3: John Kedzierski: Unit economics are similar, but eXpedite's current cost is a headwind due to its new status. George Kutsor: eXpedite follows a 4-year subscription model like Express. - John Kedzierski(President, CEO & Executive Director), George Kutsor(Chief Financial Officer)

How will gross margin change during the transition to full subscription? - Jeremy Hamblin (Craig-Hallum)

2025Q2: The 54% to 56% gross margin range reflects the shift to in-house purchase fulfillment and large education contracts. This is not due to competitive pressure but strategic adjustments. - George Kutsor(CFO)

Contradiction Point 3

Regulatory Environment and Sales Cycles

It involves the company's response to regulatory issues and their impact on sales cycles, which could affect revenue projections and investor confidence.

How is revenue from the Gwinnett County contract recognized and what is the timeline? - Jeremy Hamblin (Craig-Hallum Capital Group LLC)

2025Q3: We are in communication with the FTC, working towards a resolution. Sales cycle times have not changed, but close rates remain strong. We've managed the regulatory environment by discussing it early in sales cycles, maintaining transparency with customers. The FTC investigations typically take 12-18 months. - John Kedzierski(President, CEO & Executive Director)

Could you provide an update on regulatory developments? How are sales cycles performing? - Brett Knoblauch (Cantor Fitzgerald)

2024Q2: We are in communication with the FTC, working towards a resolution. Sales cycle times have not changed, but close rates remain strong. We've managed the regulatory environment by discussing it early in sales cycles, maintaining transparency with customers. The FTC investigations typically take 12-18 months. - Peter George (President and CEO)

Contradiction Point 4

Expansion in Industrial Warehouse Vertical

It pertains to the company's strategic focus and growth prospects in the industrial warehouse vertical, which could impact future revenue projections.

How might the Plexus contract affect manufacturing costs and eXpedite's growth? - Jeremy Hamblin (Craig-Hallum Capital Group LLC)

2025Q3: The industrial warehouse vertical is not yet part of our TAM but shows potential for expansion. - John Kedzierski(President, CEO & Executive Director)

What is the outlook for the industrial warehouse vertical? What catalysts are needed to accelerate the industrial warehouse segment? - Unknown Analyst (Cantor Fitzgerald)

2024Q2: It's still early days in the industrial warehouse vertical, which is expected to become significant in 2025. This vertical holds promise for materially increasing revenue. - Peter George (President and CEO)