Evolv Technologies Holdings, Inc.

Good afternoon and welcome to the Evolve Technology second quarter earnings results conference call. All participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Brian Norris, Senior Vice President of Finance and Investor Relations for Evolve Technology. Please go ahead, sir.

Thank you, Megan, and good afternoon, everyone, and welcome to the call. I'm joined here today by John Kozerki, our President and Chief Executive Officer, and Chris Kutzer, our Chief Financial Officer. This afternoon, after the market closed, we issued a press release announcing our second quarter 2025 results and our business outlook for the rest of the year. This press release has been furnished with the SEC and is available on the IR section of our website. During today's call, we will make forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may relate to our current expectations and views of future events, including, but not limited to, statements regarding our future operations, growth and financial results, our potential for growth and ability to gain new customers, demand for our products and offerings, and our ability to meet our business outlook. All forward-looking statements are subject to material risks, uncertainties and assumptions, some of which are beyond our control. Actual events or financial results may differ materially from these forward-looking statements because of a number of risks and uncertainties, including, without limitation, The risk factors set forth under the caption Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 28, 2025, and our quarterly report on Form 10-Q for the three months ended June 30, 2025, filed with the SEC earlier today. Forward-looking statements made today represent our views as of August 14, 2025. Although we believe that the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance, or the events and circumstances reflected in our forward-looking statements will be achieved or will occur. Except as may be required by applicable law, we disclaim any obligation to update them to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which we believe provide additional insights for investors. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. These measures include adjusted gross profit, adjusted gross margin, adjusted operating expenses, adjusted operating income, adjusted EBITDA, and adjusted EBITDA margin, as well as adjusted earnings and adjusted earnings per diluted share. Reconciliations between these non-GAAP measures and the most directly comparable GAAP measures can be found in our press release issued today. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. We will be discussing key operating metrics, such as inter-recurring revenue, or ARR, and remaining performance obligation, or RPO, each of which we believe is helpful to investors in understanding the progress we are making as a business. Please be advised that as of January 1st, 2026, we will no longer be disclosing units shipped, a metric we no longer believe is consistently indicative of our prospects and could cause confusion due to the growing activity related to, one, short-term subscription contracts, and two, upgrades to new equipment with new four-year subscriptions. Neither of these important activities, which are revenue generating, actually add to our deployed unit count. One last item. We have an active IR schedule coming up, highlighted by the Craig Hallam Alpha Select Conference in New York in November and the UBS Technology Conference in Scottsdale in December. For more information, please contact me at bnorris at evolvetechnology.com. With that, I'll turn the call over to John. John?

Thank you, Brian. And thanks to everyone for joining us today. Over the past few quarters, we've been focused on stabilizing the business, addressing our cost structure, and implementing enhanced controls and process improvement. On our last call, we spoke about those foundational steps. Since then, we've taken two more meaningful steps forward. First, as previously reported, in November 2024, the company received a voluntary document request from the US Attorney's Office of the Southern District of New York, a division of the US Department of Justice. I'm pleased to report that in the letter dated August 7th, 2025, the DOJ informed Evolve that the company is no longer the subject of a DOJ investigation. Second, on August 5th, 2025, the parties in the previously reported securities class action lawsuit pending in the District of Massachusetts engaged in mediation and reached the settlement in principle, which would be primarily funded by our DNO insurance. This settlement is subject to negotiation of definitive documentation and court approval. Our direct financial exposure is expected to be no more than $1 million, which represents the deductible under one of our applicable DNO insurance policies. With these two matters now largely behind us, we are fully focused on our goal of building a durable, high-growth business with highly predictable results. The operational changes we've made over the past six months Together with key leadership transitions are beginning to show results. As we enter the second half of the year, we're making meaningful progress and driving more consistency and stability across the organization. That said, we know there's more work to do. Our focus remains on discipline execution and continuing to raise the bar on our workmanship to meet the high standards we've set for ourselves. Before we dive into the results, I want to share an update about the leadership team. I want to take a moment to share the news that Mike Ellenbogen has made the decision to step down as an active employee next month. Mike will remain a trusted advisor to me. He will remain an important member of the board of directors and a significant shareholder. No one will be rooting more passionately for the continued success of evolved technology in the years ahead than Mike. In discussions with Mike, he shared with me that he feels this is the ideal time for his transition. The company has successfully resolved many of the challenges it has been grappling with over the last several years and has strong confidence in the new management team and the long-term direction of the company has reinforced his decision. True to his entrepreneurial spirit, Mike will be pursuing a new venture outside of the security industry. We look forward to seeing him thrive in this exciting next chapter. We owe Mike a huge thank you for his visionary leadership, relentless dedication, and the lasting impact he has made on the company and the industry. Over an extraordinary career spanning more than three decades, Mike has been a pioneer in the physical security space and, of course, a driving force in the creation of evolved technology in 2013. His contributions have laid a strong foundation for our future, and we look forward to continuing to benefit from his insight and guidance as he embarks on this exciting new chapter. With that, let's dive into our second quarter results, which reflected growing momentum across the business. Revenue was $32.5 million, up 2% sequentially and 29% year over year. This reflects strong new customer growth, as well as expanding deployments in our install base. Annual recurring revenue, or ARR, at June 30th, 2025 was $110.5 million, reflecting growth of 27% year over year. We reported our third consecutive quarter of positive adjusted EBITDA, with adjusted EBITDA margin of 6% in Q2 2025. Total cash, cash equivalents, and marketable securities was up $2 million sequentially in Q2 2025. to $37 million compared to $35 million at the end of Q1. This is the first quarter we have reported a sequential increase in total liquidity, which reflects the significant steps we've taken over the last nine months to reduce our cost structure, improve overall corporate efficiency, optimize inventory levels, and strengthen collections activity. There's more work ahead, but it's a clear sign of progress. We welcomed over 60 new customers in the second quarter and now serve over 1,000 customers globally. We've also recently surpassed 7,000 active subscriptions, well on our way to delivering on our goal of at least 8,000 active subscriptions by the end of the year. This continues to represent a very small slice of the hundreds of thousands of entrances that can be protected by AI-based weapons detections. We continue to screen, on average, over 3 million people every day and have now surpassed 3 billion people screened by Evolve Express. More importantly, our technology is being used by our customers to tag, on average, approximately 500 firearms every single day. We continue to see signs of progress and renewed momentum across the business. In the second quarter, approximately 54% of our booked units and 56% of our booked ARR came from existing customers, continuing the trend we've seen consistently over the last 12 to 18 months. These are organizations that have deployed our technology, seen it work in real-world environments, and are choosing to expand their investment. That ongoing pattern is one of the strongest signals of customer trust and the value we provide. We continue to see early signs of customers upgrading to our Gen 2 Express platform, often before their initial Gen 1 contracts are set to expire. These upgrades generally include new four-year commitments, increasing customer stickiness, and expanding RPO. In fact, of the nearly 200 existing customer units that were actioned in the first half of 2025, the vast majority included an upgrade to Gen 2. Unlike standard renewals of existing equipment, Upgrading to Gen 2 generally resets the four-year subscription term and customer commitment. Together, upgrades and renewals reflect strong customer satisfaction and growing confidence in Evolve's technology roadmap. Expedite, our autonomous AI-based bag screening solution, continues to build strong momentum since its launch in Q4 24. We added eight more Expedite customers in Q2 25, bringing the total to 20 customers since launch. Demand for Expedite has been encouraging here in Q3, including one order for over 100 systems. We believe Expedite has the potential to drive broader customer adoption and enhance the stickiness of our subscription model. By leveraging the combined platform of Express and Expedite, customers can run their security operations through a single cloud portal and device delivering a seamless superior experience for visitors and operators while becoming an indispensable part of their daily operations. While we're still early in the product introduction cycle and haven't yet reached the full cost efficiency that comes with scale, early demand signals have been encouraging. Let me turn to the trends we're seeing in our end markets, starting with education. We continue to see larger school districts phase deployments across multiple quarters, which means major wins often show up gradually in our ARR and deployed unit counts. We are encouraged with the growing interest we are seeing in Expedite across the education market, which we believe is an excellent use case for bag screening. In Q2, we expanded our presence in the education market by approximately 20 new school districts across the U.S., spanning urban, suburban, and rural communities. These included four new districts in Georgia, four in North Carolina, three in California, two in Texas and one each in Alabama, Illinois, Indiana and Pennsylvania. Collectively, these districts serve hundreds of thousands of students. As these districts prepare for the upcoming school year, we're honored to support their efforts to create safer learning environments for students, educators and the broader community. We're excited to share an important Q3 update in the education market. Just last week, we secured a $15 million contract to provide our AI-based security screening solutions to Gwinnett County Public Schools, Georgia's largest school district, serving approximately 180,000 students. We will keep investors up to date on this exciting deployment. In healthcare, Evolve is making meaningful strides in transforming hospital safety. Our concealed weapons detection technology is helping hospitals enhance security without compromising the patient's experience. A few recent wins in this market include Ohio State University Wexner Medical Center, a nationally ranked academic health system based in Columbus, Ohio. It comprises seven hospitals and more than 100 outpatient sites with over 22,000 employees and 1,400 plus staffed beds. Virginia Mason Franciscan Health, a nonprofit health system serving Washington's Puget Sound region, including Seattle and Tacoma. The system includes 11 hospitals and nearly 300 care sites, supported by more than 18,000 team members. Broward Health is one of the largest public hospital systems in the United States with 7,500 employees serving South Florida through four hospitals, a children's hospital, and an extensive network of outpatient and community care facilities. These wins reflect the growing demand among the health systems for smart or seamless security solutions that can help foster peace of mind for patients, visitors, and frontline staff alike. and establishing footholds in each of these leading institutions is a positive first step in what we hope will become long and enduring relationships. Shifting to sports and entertainment, momentum continued to grow in the second quarter, both in terms of new wins and meaningful renewals and upgrades with some of our earliest customers. We secured a marquee win with Inter-Miami CF, where we were selected for Miami Freedom Park, the team's brand new state-of-the-art stadium opening in 2026. The club will deploy both Evolve Express Gen 2 and Evolve Expedite, underscoring the flexibility of our platform across entrance types and crowd flows. Other new customers included FC Cincinnati, another fast-growing Major League Soccer franchise with strong fan engagement. and two NBA training facilities, the Philadelphia 76ers Training Complex and the Henry Ford Health Pistons Performance Center, the Detroit Pistons' cutting-edge training and business facility. We also played a key role in securing and executing the FIFA Club World Cup II, delivering over 100 systems under a short-term subscription contract to support more than 30 sites and more than 60 matches. On the renewal front within sports and entertainment, we had a strong quarter with several longstanding customers who upgraded to Gen 2 and signed new multi-year contracts. These include Nissan Stadium, home to Tennessee Titans, Gillette Stadium, home of the New England Patriots and the New England Revolution, and Lower.com Field, home of the Columbus Crew. We believe these upgrades reaffirm our value in securing high-traffic sports venues and our ability to scale with our customers over time. In the arena entertainment space, we've expanded our footprint through our partnership with ASM Global into three venues, including Barclays Center, home to the Brooklyn Nets and the WNBA champion New York Liberty, and one of the premier multipurpose arenas in the country. Finally, rounding out a look at some key end market progress, we secured a significant win with a Fortune 50 company that is deploying Evolve's technology across a set of its high traffic industrial distribution facilities, as well as in their corporate headquarters. The customer is focused on enhancing employee safety while minimizing disruption to daily operations. It marks a strong foothold in the industrial workplace segment and opens the door to broader enterprise-wide expansion over time. Collectively, these wins and deployments highlight our growing presence across multiple verticals and geographies and reinforce the strength of our platform in high volume, high visibility environments. I want to shift and share a few thoughts on our go to market model. We have traditionally offered two ways for customers to deploy our technology. A full subscription model where we retain ownership of the equipment and lease it to customers alongside a four-year subscription for the software that operates it. And a purchase subscription model where customers buy the equipment either directly through us or through our distribution partner and then enter into a four-year software subscription with us to operate the equipment. Having reached key profitability milestones and having secured a new credit facility, we believe now is the right time to shift purchase activity back to direct fulfillment as opposed to distribution fulfillment. Express Gen 2's capital efficiency and Evolve's improved financial foundation make this the right long-term move for shareholders. For customers that want to own the equipment, direct fulfillment under our purchase subscription model offers us clear advantages over the contract term. higher revenue, higher lifetime value, greater cash flow, and most importantly, higher ARR on a per unit basis compared to distribution fulfillment. This model also positions us better during renewal cycles with higher renewed ARR, which continues to compound over time. While this change creates a year one gross margin headwind because we recognize the full system cost immediately, It is a trade-off we can now make with the lower Gen 2 cost of goods sold. However, over time, we expect our ARR will grow faster than it would if we kept operating fulfillment through distribution. This shift also simplifies how customers do business with Evolve, since it requires just one purchase order with Evolve instead of two, including the distributor. We expect this change will strengthen relationships, improve deal velocity, and give us more control over pricing and service, driving sustainable growth and profitability. Going forward, there will be two sales motions, pure subscription and direct purchase subscription, both of which we believe offer superior economics for shareholders compared with a distribution subscription model. This positions us for stronger, more profitable growth in the years ahead. Before I turn things over to Chris, I want to briefly share some context on our outlook. Based on the momentum we're seeing in the business, the growing backlog we have built, and the strength of larger multi-quarter opportunities that are progressing in our near-term pipeline, we are raising our outlook for 2025. We have strong visibility into the key drivers of our business and remain confident in our ability to deliver on our 2025 goals and to accelerate sustainable growth beyond this year. We now expect to grow revenue by 27 to 30% this year compared to our previous guidance of 20 to 25% growth. We continue to expect to deliver positive full-year adjusted EBITDA. We remain committed to generating positive cash flow in Q4. With that, Alternative with Chris, who will take you through our financial results and the details behind this upwardly revised outlook.