Evolv Technologies' Q3 2025 Earnings Call: Contradictions in Revenue Recognition, Unit Growth, and Deployment Expectations

Date of Call: November 13, 2025

Financials Results

• Revenue: $42.9M, up 57% YOY
• Gross Margin: 51% (adjusted), compared to 64% in the prior year

Guidance:

• 2025 revenue expected $142M–$145M (37%–40% growth); normalized ~30% excluding onetime items
• 2025 adjusted gross margin 52%–54%; positive full-year adjusted EBITDA with high-single-digit margins; Q4 cash-flow positive expected
• 2026 modeled revenue $160M–$165M; plan to add more units in 2026 with ARPU stable
• Expect ARR to grow ≥20% in 2026; $5M–$10M of 2026 revenue expected to be deferred into ARR/RPO due to pricing/fulfillment shift
• Modest expansion of adjusted EBITDA margins anticipated in 2026

Business Commentary:

• Revenue Growth and ARR Mismatch:
• Evolv Technology reported revenue of $42.9 million for Q3 2025, up 57% year-over-year.
  
• Although ARR grew by 25% year-over-year, it trailed revenue growth due to the trailing impact of the legacy distribution model and a higher proportion of purchase sales over subscription sales.

• This trend is expected to reverse in 2026 as Evolv transitions to direct distribution, which captures 100% of contract ARPU and shifts more revenue to recurring revenue streams.

• Units and ARPUs:

• Deployed unit count grew by 30% year-over-year, which is a more normalized view of business fundamentals than revenue growth.
• The revenue mismatch is attributed to the legacy distribution model, which resulted in a higher proportion of total contract value being taken upfront, and a higher proportion of purchase sales.

• Evolv's move to direct distribution and emphasizing ARR over short-term product revenue is intended to align revenue recognition with pricing models and enhance long-term recurring revenue.

• Strategic Partnership and Production Expansion:

• Evolv announced a new strategic partnership with Plexus, which is expected to enhance production capacity and operational resiliency.

• This partnership aims to deliver technology to places where people gather and is anticipated to support the next phase of Evolv's growth.

• The collaboration is expected to expand Evolv's global reach and provide infrastructure to support increased manufacturing, potentially reducing costs over time.

• Product Innovation and Customer Acquisition:

• Evolv's new autonomous AI-powered bag screening solution, eXpedite, gained significant traction, with 12 new customers added in Q3.
• The introduction of eXpedite has led to one-for-one deployments with Express, enhancing security and streamlining student experiences.
• The integration of eXpedite contributes to an enhanced security experience with reduced false alarm rates, benefiting customers across various verticals.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management raised 2025 revenue guidance to $142M–$145M and said they reported a fourth consecutive quarter of positive adjusted EBITDA (12% margin). They forecast 2026 revenue of $160M–$165M and expect ARR to grow by at least 20%, highlighting stronger ARR visibility and unit growth plans.

Q&A:

• Question from Jeremy Hamblin (Craig-Hallum): How will revenue recognition on the large contract play out going forward given the legacy distribution impacts and direct fulfillment shift?
  Response: Legacy distribution caused upfront revenue; for this purchase-subscription the company will recognize roughly $5M of the order in the first two quarters of a 48-month deal, then normalize to 48-month revenue recognition into 2026.

• Question from Jeremy Hamblin (Craig-Hallum): How will the Plexus manufacturing agreement change baseline costs for Express (Gen2/Gen3) and will Plexus manufacture eXpedite to help ramp that business?
  Response: Plexus onboarding targets production in H1 2026; over time management expects scale and cost synergies, with the full product portfolio eventually produced at Plexus, lowering COGS as volume grows.

• Question from Jeremy Hamblin (Craig-Hallum): What is the rough attachment rate of eXpedite to Express and does attachment vary by vertical (education vs stadiums, etc.)?
  Response: Strong attach: in Q3 there were 12 eXpedite customers and 11 of them also acquired Express; deployments are occurring across education, sports, entertainment and healthcare.

• Question from Eric Martinuzzi (Lake Street Capital Markets): When you say units will grow in 2025 vs 2024 and 2026 vs 2025, are you referring to aggregate units (Express + eXpedite) or Express only?
  Response: Guidance and commentary refer to aggregate units (Express plus eXpedite).

• Question from Eric Martinuzzi (Lake Street Capital Markets): What's the price delta between Express and eXpedite if purchased outright, or how do unit economics compare?
  Response: Unit economics are similar overall; eXpedite currently runs at subscale manufacturing cost causing a short-term gross margin headwind, but margins should converge as scale improves; eXpedite is also sold on a 4‑year subscription model.

• Question from Shaul Eyal (TD Cowen): How have channel partners reacted to the shift from distribution to direct fulfillment?
  Response: Reaction is positive; channels remain central but now buy directly from Evolv, simplifying their purchase process and allowing Evolv to capture 100% of ARPU.

• Question from Shaul Eyal (TD Cowen): How many triple-digit (100+ unit) transactions are in the pipeline given the 250-unit deal?
  Response: No specific pipeline counts provided; management reiterated plans to grow units in 2026 building on the 250‑unit order but declined to quantify triple-digit opportunities.

• 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 this quarter; excluding the very large order the figure would be about 50%.

• Question from Michael Latimore (Northland Capital Markets): Any color on new verticals—are warehouse or office promising compared to existing verticals?
  Response: Vertical mix remains consistent with sports & entertainment, education and healthcare as largest verticals; management noted interest from a large Fortune 500 distribution customer and ongoing efforts to expand across verticals.

Contradiction Point 1

Revenue Recognition Model Shift and Large Contract Impact

It involves the impact of a large contract on revenue recognition due to a shift in distribution models, which affects the timing and pattern of revenue recognition, potentially influencing investor expectations.

Can you explain the revenue recognition for the large contract, including one-time items and the transition from distribution to direct fulfillment? - Jeremy Hamblin(Craig-Hallum)

20251114-2025 Q3: The transition from legacy distribution model results in more upfront revenue. We're moving to direct fulfillment, but there'll be a tail effect, with revenue recognition normalizing over time. The largest order will see about $5 million in the first two quarters, then adjust to longer-term recognition in 2026. - John Kedzierski(CEO)

How will the large contract's revenue recognition be affected by changes in distribution and pricing models? - Jeremy Hamblin(Craig-Hallum Capital Group LLC)

2025Q3: This effect only applies to purchase subscription orders, affecting about half of our business. It's due to hardware pricing in GAAP accounting. - George Kutsor(CFO)

Contradiction Point 2

Unit Volume and Growth Expectations

It involves expectations for unit growth, which is a key metric for understanding the company's production capacity and market demand, impacting investor and strategic planning.

Does the increase in units from 2024 to 2026 include both Express and eXpedite units? - Eric Martinuzzi(Lake Street Capital Markets)

20251114-2025 Q3: Yes, the aggregate units of Express and eXpedite are expected to increase from 2025 to 2026. - John Kedzierski(CEO)

Are you referring to combined Express and eXpedite units for 2025 vs. 2026? - Eric Martinuzzi(Lake Street Capital Markets)

2025Q3: The aggregate units for 2026 are expected to exceed those of 2025. - John Kedzierski(CEO)

Contradiction Point 3

Revenue Recognition and Fulfillment Model Impact

It involves changes in revenue recognition practices due to the shift in distribution and fulfillment models, which could affect financial reporting and investor understanding.

Can you explain the revenue recognition for the large contract, including one-time items and the transition from distribution to direct fulfillment? - Jeremy Hamblin(Craig-Hallum)

20251114-2025 Q3: The transition from legacy distribution model results in more upfront revenue. We're moving to direct fulfillment, but there'll be a tail effect, with revenue recognition normalizing over time. - John Kedzierski(CEO)

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

2025Q2: The shift from distribution to direct fulfillment will not impact revenue recognition. It's an execution item, but it doesn't change the timing of revenue recognition. That's a key point. - George Kutsor(CFO)

Contradiction Point 4

Unit Deployment Expectations

It involves changes in the deployment expectations for Express and eXpedite units, which are important operational and growth indicators.

Does the increase from 2024 to 2026 include both Express and eXpedite units? - Eric Martinuzzi(Lake Street Capital Markets)

20251114-2025 Q3: Yes, the aggregate units of Express and eXpedite are expected to increase from 2025 to 2026. - John Kedzierski(CEO)

What is the expected range for units deployed in 2025? - Eric Martinuzzi(Lake Street Capital Markets)

2025Q1: We aim to deploy at least as many units in 2025 as in 2024, approximately 8,000 units by year-end. - John Kedzierski(CEO)