Evolv Technologies Holdings, Inc.

Good afternoon and welcome to the Evolve Technology Third 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. Welcome to today's call. I'm joined by John Kaczorski, our president and CEO, and Chris Kutzer, our CFO. Earlier today, after market closed, we issued a press release detailing our third quarter 2025 results and full year outlook. Release is filed with the SEC and available on the investor relations section of our website, where you will also find a supplementary slide highlighting the benefits of our transition to our direct distribution model, which we'll reference during the call. 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 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 410Q for the three months ended September 30th, 2025, filed with the SEC earlier today. The forward-looking statements made today represent our views as of November 13th, 2025. Although we believe the expectations reflected in these statements are reasonable, we cannot guarantee that future results, performance, or the events and circumstances reflected therein 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, 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, remaining performance obligation, or RPO, both of which we believe are helpful to investors in understanding the progress we are making as a business. One last item, we have an active IR schedule coming up, including the Craig Hallam Alpha Select Conference next week in New York, and two events in December, the UBS Technology Conference in Scottsdale and the Northland Capital Conference, which is being held virtually. We will also be on the road this quarter at several financial centers across the country. For more information, please contact me at dnorris at evolvetechnology.com. With that, I'd like to turn the call over to John.

Thank you, Brian, and thanks to everyone for joining us today. Our results throughout the year demonstrate meaningful progress toward greater consistency and stability across the organization. We're moving closer to our goal of building a scalable, high-growth business with predictable performance. Our focus remains on disciplined execution and an unwavering commitment to our customers' success. Our Q3 results reflect the latest steps on that journey. Revenue was $42.9 million, up 57% year over year. driven by strong new customer acquisition and expanded appointments within existing customers, as well as higher one-time product revenue associated with certain customer wins, including the largest customer contract in the company's history. We have also benefited from the completion of certain short-term subscription contracts, including the premier international soccer tournament we supported over the summer. Chris will get into more detail on revenue in a few minutes. Our overall visibility continued to shrink, with Q3 marking the strongest booked-to-deployed unit ratio in the company's history. Thanks to the changes we have been sharing with investors and our go-to-market model, we expect 2026 to be an inflection point where Evolve's ARR growth will outpace revenue growth. Let me explain that encouraging trend a bit further, which we introduced to investors on our prior call. While we are delighted with 57% year-over-year revenue growth, it is important to note that our deployed unit count grew by about 30% year-over-year, which we believe provides a more normalized view of the fundamentals of the business. The gap between revenue growth and unit growth is primarily based on two factors. First, it reflects the trailing impact of our legacy distribution fulfillment model. which results in a higher proportion of the total contract value taken in the immediate period, lower ARR and lower total contract revenue as compared to direct purchase fulfillment. The second factor driving the delta between revenue growth and unit growth is a higher proportion of purchase versus subscription sales, or RMICs. Specifically, units purchased by our customers represented 57% of unit activity in Q3 compared to 41% in the year-ago period. By transitioning away from our legacy distribution model, we now capture 100% of the average revenue per unit, or ARPU. This shift increases recurring revenue over the four-year subscription term and delivers back to Evolve a higher level of cash per unit. To illustrate the differences between distribution and direct fulfillment, we've created a chart and posted it on our investor relations website. While we have largely completed the move away from a distribution fulfillment model, and we have also repriced our solutions effective July 1 to emphasize software and ARR, it will take some time for our revenue recognition to match our new pricing. As a result, in Q3, we saw higher one-time product revenue related to the prior distribution model and associated revenue recognition treatment. Over time, our revenue recognition will more closely match our pricing and the majority of our ARPU will be in ARR instead of one-time product revenue. In summary, the trailing effects of distribution fulfillment and a higher proportion of purchase units drove revenue to outpace unit and ARR growth. and why we believe 30% is a more meaningful measure of year over year growth. We finished the quarter with annual recurring revenue for ARR at $117.2 million, reflecting growth of 25% year over year. While our ARR growth trailed revenue growth in Q3, we expect this ratio to begin to flip in 2026 with faster ARR growth relative to total revenue growth, as I mentioned. We reported our fourth consecutive quarter of positive adjusted EBITDA with adjusted EBITDA margins of 12% in Q3. We welcomed over 60 new customers in Q3 and are raising our year-end estimate for active subscriptions to between 8,000 and 8,100. This continues to represent a very small slice of the hundreds of thousands of entrances that advanced weapons detection can help protect. We continue to see a strong trend of customers proactively upgrading to our Gen 2 Express platform. These upgrades typically reset the subscription churn with fresh four-year commitments. Gen 2 upgrades also helped drive a sequential 8% increase in RPO, which stood just shy of $300 million at the end of Q3. Expedite, our new autonomous AI-powered bag screening solution, continued to gain strong traction since its Q4 2024 launch. In Q3 alone, we added 12 new customers, primarily in schools, where we are beginning to see one-for-one deployments of Expedite and Express to help streamline security by lowering alarm rates and enhancing the student experience. We believe the combination of Express plus Expedite provides an exceptional security experience in terms of threat detection capabilities and false alarm rates. Based on early deployment data across education customers, Evolve Expedite has shown an alert rate of approximately 2%, demonstrating strong promise in balancing detection with the goal of keeping false alarm rates low. Beyond the numbers, we are making a real difference in the communities we serve. Every day, we screen on average more than 3 million people. And since the launch of Evolve Express, we have screened over 3 billion visitors. Evolve Expedite, introduced just a few quarters ago, has already been used to screen more than 1 million bags. On average, our technology helps customers detect and tag 500 firearms daily. What does that look like in real life? In August, at a high school in Nashville, our system identified and helped intercept a loaded handgun at the door. In October, Evolve Express detected a loaded firearm in a student's backpack at a high school in Georgia. And just two weeks ago, our solution identified a concealed firearm during morning arrival at a high school in Atlanta. These three examples provide a small glimpse into the impact we are having on education. In the third quarter, we added over a dozen new school districts across the U.S. These included two new districts in New Jersey, two in Michigan, two in California, and one each in Wisconsin, Tennessee, South Carolina, Nevada, Montana, Louisiana, Iowa, and Connecticut. In healthcare, we are driving meaningful change by helping hospitals elevate safety standards while minimizing the impact on patient and visitor experience. Our solutions are enabling smoother and faster entry while enhancing threat detection at critical access points. With growing demand across the sector, we are now screening hundreds of thousands of visitors daily in medical facilities nationwide. A few recent wins in this market include WellSpan Health, UC Davis Health, and Seattle Children's Hospital. Shifting to sports and live entertainment, we expanded our presence in professional hockey with the Buffalo Sabres. who entered a multi-year subscription agreement to deploy nine Evolve Express Gen 2 systems at T Bank Center. This deployment is part of a broader 2025 arena upgrade initiative aimed at improving ingress and egress for fans. In collegiate athletics, the University of North Carolina at Chapel Hill is deploying Evolve Express to enhance safety and streamline entry at its athletic venues. In the world of professional football, Bank of America Stadium, home to the Carolina Panthers and Charlotte Football Club, recently completed a long-term renewal, upgrading to Gen 2 of Evolve Express. The venue now operates 19 systems and has added Evolve Expedite for enhanced bag screening and faster guest entry. Staying in professional football, our technology is now being deployed at nearly a dozen practice and training facilities league-wide. This initiative includes both Evolve Express and Evolve Expedite. We believe this is a strong endorsement of our ability to deliver a superior security experience for a variety of entry flows, covering fans, staff members, players, media, and VIP guests. These wins reinforce our ability to penetrate diverse markets and deliver trusted solutions that drive long-term growth. We welcome all our newest customers and take sacred the trust they have placed in us. We look forward to the challenge of earning their business every day. Shifting into business operations, we're excited to announce a new strategic partnership with Plexus, a collaboration that expands production capacity, global reach and operational resiliency. Plexus is a global leader in design, manufacturing and supply chain services that brings the infrastructure and expertise to support the next phase of our growth. With 26 facilities and more than 20,000 team members worldwide, They'll help deliver our technology to the places people gather every day. I want to shift gears for a moment and share some exciting developments on the product development front. I'm pleased to share that we recently released the latest versions of our software, Evolve Express 9.0, Evolve Expedite 1.2, and My Evolve Portal and Evolve Insights 6.0. These updates reflect our ongoing commitment to improving performance and user experience for our customers, now numbering over 1,000 globally. With this release, we've introduced several enhancements aimed at supporting security teams in their day-to-day operations. Among the highlights is a new integrated tablet interface, which brings together the workflows of Express and Expedite into a single streamlined user interface. We also released the integration of Expedite into the My Evolve portal, enabling customers to see operational data or walkthrough and now bag screening in a single location. With these enhancements, we have strengthened the bundled customer ownership experience for Express plus Expedite. We've also expanded alert tagging and added sensitivity tuning, giving our customers more control in how they manage their security operations. These improvements are the results of listening closely to our customers and continuing to push the boundaries of what's possible in safety and efficiency. Through our subscription model, we're able to deliver these software capabilities seamlessly via the cloud, enabling innovation to reach the field without disruption. With each release, we aim to raise the bar, not just for ourselves, but also for the entire industry. Before I hand things over to Chris, I want to take a moment to share a bit of context around our outlook. We're seeing strong momentum in the business. Our backlog continues to grow and we've got a healthy pipeline. For those reasons, we are raising our 2025 outlook. We now expect to grow revenue by about 37 to 40% in 2025 compared to our previous guidance of 27 to 30% growth. I would point out that our upwardly revised revenue forecast for the year of between $142 million to $145 million includes certain one-time benefits. In particular, related to one-time revenue recognition from our legacy fulfillment and pricing models that I mentioned earlier. Excluding these short-term revenue items, we will be forecasting total revenue growth in 2025 of about 30% year over year. We continue to expect to deliver positive full-year adjusted EBITDA with full-year margins in the high single digits. We remain committed to generating positive cash flow in Q4. Looking ahead to 2026, let me start with this fundamental principle. We're planning to add more units in 2026 than we did in 2025 with ARPU trends remaining stable. As a reminder, our 2025 results included the largest customer contract in the company's history, more than 250 units. We plan to grow on top of that order. The changes in our distribution fulfillment model and pricing structure will allow us to capture 100% of contract ARPU, shift more of that ARPU from one-time revenue into ARR and RPO, and create an opportunity to maximize leverage in the business over time. We estimate that these subtle but powerful shifts of emphasizing ARR over short-term product revenue will defer about five to 10 million of revenue in 2026 that we would otherwise have captured had we not changed our distribution and pricing structure. We expect that five to $10 million to convert into long-term recurring revenue streams that will benefit future years. We're currently modeling full year 2026 revenue of between 160 to 165 million dollars importantly we expect arr to grow by at least 20 outpacing total revenue growth in 2026 which is an important pivot for evolve this management team continues to prioritize arr growth and other long-term value drivers with that I'll turn it over to Chris, who will take you through our financial results and the details behind our outlook.